American Trade Partnerships and Agreements

The economy of the United States is one of the largest and most developed in the world. It is a mixed economy, consisting of numerous sectors and industries, which rely on international trade to expand and profit. As a hegemonic power, the United States engages in extensive trading operations around the globe. The purpose of this report is to examine the sectors and partnerships of the United States in international trade. Critical topics such as exports, imports, trade deficits, and free-trade agreements will be outlined to construct a comprehensive review of the country’s economic activities. The United States maintains a significantly higher level of imports than exports, resulting in artificially created deficits in many countries, which puts pressure on the domestic economy and creates opposition to potentially unfavorable trade agreements.

Trade in Terms of Value

The United States excels at trading its industrial and manufacturing products. The list of leading exports and imports is identical, but the value significantly differs. The provided values are for the 2016 fiscal year. Transportation equipment leads the country’s exports with over $276.7 billion. This includes America’s leading automotive industry. Meanwhile, imports for transportation equipment stand at $374.9 billion. Computer and electronic products follow with $201.9 billion, which includes highly sophisticated electronics that are developed by world’s leading technology firms. Imports stood at $372.8 billion. Chemicals are third on the list of exports with $184.5 billion, an industry where the United States is highly proficient. However, imports are at $214.7 billion. Non-electrical machinery is fourth with $124.6 billion in exports. Imports are $151.6 billion (U.S. Department of Commerce, 2016). As a developed country engaged in global intra-trade, it is expected that the leading sectors of export and import goods remain similar.

Trade Partnerships

The leading countries, which matter most to the United States regarding exports, are Canada and Mexico, with $266.8 and $229.7 billion respectively in 2016. China stands at $115.6 billion and Japan at $63.2 billion. These countries have traditionally been close economic partners for the United States, and stand as the most significant buyers of U.S. goods. Meanwhile, the United States imports most goods from China by an extraordinary value of $462.6 billion. It is considered that the two countries have the most extensive and financially valuable relationship in international trade. Similarly to exports, the United States imports heavily from Mexico ($294 billion), Canada ($277.7 billion), and Japan ($132 billion). Imports from Germany are also significant in value at $114 billion (U.S. Department of Commerce, 2016).

Trade balances are a critical aspect of international trade. The United States maintains the highest trade surpluses with Hong Kong ($27.5 billion), Netherlands ($23.6 billion), and United Arab Emirates ($19 billion). As commonly known, the United States has an unprecedented trade deficit with China, which stands at $347 billion. Other countries include Japan ($68.8 billion), Germany ($64.7 billion), and Mexico ($64.3 billion). In the general scope of international trade, the United States has a $736.8 billion trade deficit (U.S. Department of Commerce, 2016). The concept of trade deficit has various perspectives and predictions for the United States economy. However, the reason for its existence is based on macroeconomic realities that the United States does not have an economy heavily based on the household goods production, a majority of which it is forced to import. While it continues to export products from other sectors, it is not enough to maintain a surplus. The country finds finances to pay for the imports due to its abundant capital. Net inflow of capital into the United States as a leading financial market and investment destination in combination with a massive amount of borrowing which is done by the U.S. government create an available balance for the purchase of goods.

Free-Trade Agreements

The U.S.-Canada free-trade agreement signed in 1989 received little opposition because it is beneficial to the domestic economy. Canada was a well-developed and industrialized nation with an economy matching the United States regarding structure, primary sectors, and macroeconomic environment. It led to the formation of an intra-industry trade pattern, which produces significant benefits such as diversifying products, reduced prices due to economies of scale, and stimulating innovation (Dudovskiy, 2012).

Meanwhile, the free-trade agreement signed with Mexico in 1994 generated concern amongst economists due to a radically different economic relationship, which would form as a result. The Mexican economy is considerably less complex and sophisticated than that of the United States, focusing on oil or natural gas extraction and basic manufacturing as its primary sectors. It had little to offer the United States except for products at a cheap rate. This led to the formation of inter-industry trade, which revolves around the concept of competitive advantage. Each country would produce and exports that were financially viable and export it across the border. Opposition to the agreement was justified since Mexico had the advantage of abundant natural resources and cheap labor, many non-sophisticated sectors of manufacturing moved production there. The final products are then exported to the United States to be sold at a higher rate, technically counting as imports. This situation creates a consequential disadvantage for the United States economy since it can only export highly technological goods which Mexico cannot produce. It creates a significant trade deficit because these goods are usually exported in significantly lower volumes than manufacturing imports arriving from Mexico.

The U.S. trade deficit with Canada stands at just under $11 billion for 2016. It can be seen that for most sectors, there are no significant deviations from equilibrium. Canada exports much more oil and gas sector products and the United States exports larger quantities computer and electronic products. This is natural for any economic exchange; however, such a low trade deficit for a close-knit relationship suggests that there is an established balance between exports and imports. Meanwhile, the United States trade deficit with Mexico stands at $64 billion for 2016. At the examination of traded merchandise, it is evident that the sectors are radically divided according to principles of inter-industry trade. The United States imports high-levels of transportation equipment and electronics, which are made using cheap labor at basic manufacturing facilities in Mexico. In return, it exports chemical and petroleum products that require sophisticated facilities and complex technologies (U.S. Department of Commerce, 2016).

Intra-industry trade is the economic model used by industrial countries in the modern realities of globalization. The trend of global trade has leaned towards focusing on specialization within sectors instead of focusing on the competitive advantage of industries amongst countries. Product differentiation has become central, implemented through economies of scale possible with intra-trade. As in the case of Mexico, if the size of the economy amongst the two states differ, trade becomes inter-industrial. Additionally, technological development serves as a determining factor for establishing an intra-industry relationship (Benarroch & Gaisford, 2014). It was something that the United States was able to do with Canada.

Conclusion

The United States is a leading country in international commerce, participating in valuable trade relationships. It was found that sectors, which lead exports in trade value, are also the country’s primary imports. Overall, imports are significantly larger across most industries creating deficits with practically all major trading partners. While trade with Canada remains beneficial for the economy through intra-industry trade, the inter-industry relationship with Mexico is resulting in a significant trade deficit. It may be necessary to re-examine the trade agreement with Mexico and implement tariffs to reduce the trade deficit while refocusing on increasing commodity turnover with Canada.

References

Benarroch, M. & Gaisford, J. (2014). Intra-industry trade liberalization and the environment. Review of International Economics, 22(5), 886-904. Web.

Dudovskiy, J. (2012). Inter-industry and intra-industry trade. Heckscher-Ohlin Model. Web.

U.S. Department of Commerce. (2016). Global patterns of U.S. merchandise trade. Web.

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