Foreign trade of the United States: Wikis

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Investment in the United States

Account balance as of 2006[1]
U.S.A. net international investment position

Gross U.S. assets held by foreigners were $16.3 trillion as of the end of 2006 (over 100% of GDP). The U.S. net international investment position (NIIP)[2] became a negative $2.5 trillion at the end of 2006, or about minus 19% of GDP.[3][4]

This figure rises as long as the US maintains an imbalance in trade, when the value of imports substantially outweighs the value of exports. This external debt does not result mostly from loans to Americans or the American government, nor is it consumer debt owed to non-US creditors. It is an accounting entry that largely represents US domestic assets purchased with trade dollars and owned overseas, largely by US trading partners.[4] For countries like the United States, a large net external debt is created when the value of foreign assets (debt and equity) held by domestic residents is less than the value of domestic assets held by foreigners. In simple terms, as foreigners buy property in the US, this adds to the external debt. When this occurs in greater amounts than Americans buying property overseas, nations like the United States are said to be debtor nations, but this is not conventional debt like a loan obtained from a bank.[2][4]

If the external debt represents foreign ownership of domestic assets, the result is that rental income, stock dividends, capital gains and other investment income is received by foreign investors, rather than by U.S. residents. On the other hand, when American debt is held by overseas investors, they receive interest and principal repayments. As the trade imbalance puts extra dollars in hands outside of the U.S., these dollars may be used to invest in new assets (foreign direct investment, such as new plants) or be used to buy existing American assets such as stocks, real estate and bonds. With a mounting trade deficit, the income from these assets increasingly transfers overseas.[2][4]

Of major concern is the magnitude of the NIIP (or net external debt), which is larger than those of most national economies. Fueled by the sizable trade deficit, the external debt is so large that economists are concerned over whether the current account deficit is unsustainable. A complicating factor is that trading partners such as China, depend for much of their economy on exports, especially to America. There are many controversies about the current trade and external debt situation, and it is arguable whether anyone understands how these dynamics will play out in a historically unprecedented floating exchange rate system. While various aspects of the U.S. economic profile have precedents in the situations of other countries (notably government debt as a percentage of GDP), the sheer size of the U.S., and the integral role of the US economy in the overall global economic environment, create considerable uncertainty about the future.[2][4]

According to economists such as Larry Summers and Paul Krugman, the enormous inflow of capital from China is one of the causes of the global financial crisis of 2008–2009. China had been buying huge quantities of dollar assets to keep its currency value low and its export economy humming, which caused American interest rates and saving rates to remain artificially low. These low interest rates, in turn, contributed to the United States housing bubble because when mortgages are cheap, house prices are inflated as people can afford to borrow more.[5][6]

Trade agreements

     The United States      Current Bilateral/Multilateral FTA's      Proposed Bilateral/Multilateral FTA's

The U.S. is a member of several international trade organizations. The purpose of joining these organizations is to come to agreement with other nations on trade issues, although there is some disagreement among U.S. citizens as to whether or not the U.S. government should be making these trade agreements in the first place.

Imports and exports

The United States is the most significant nation in the world when it comes to international trade. For decades, it has led the world in imports while simultaneously remaining as one of the top three exporters of the world.

As the major epicenter of world trade, the United States enjoys leverage that many other nations do not. For one, since it is the world's leading consumer, it is the number one customer of companies all around the world. Many businesses compete for a share of the United States market. In addition, the United States occasionally uses its economic leverage to impose economic sanctions in different regions of the world. USA is the top export market for almost 60 trading nations worldwide.

Since it is the world's leading importer, there are many U.S. dollars in circulation all around the planet. The stable U.S. economy and fairly sound monetary policy has led to faith in the U.S. dollar as the world's most stable currency.

In order to fund the national debt (also known as public debt), the United States relies on selling U.S. treasury bonds to people both inside and outside the country, and in recent times the latter have become increasingly important. Much of the money generated for the treasury bonds came from U.S. dollars which were used to purchase imports in the United States.

US trade by nation

US trade of goods by nation in 2004 (services not included)
Exports[7] Imports[8]
Nation Millions of dollars Percentage Cumulative Percentage Nation Millions of dollars Percentage Cumulative Percentage
Canada 189,101 23.12% 23.12% Canada 255,928 17.41% 17.41%
Mexico 110,775 13.54% 36.66% China 196,699 13.38% 30.80%
Japan 54,400 6.65% 43.31% Mexico 155,843 10.60% 41.40%
United Kingdom 35,960 4.40% 47.71% Japan 129,595 8.82% 50.22%
China 34,721 4.24% 51.95% Germany 77,236 5.26% 55.48%
Germany 31,381 3.84% 55.79% United Kingdom 46,402 3.16% 58.63%
South Korea 26,333 3.22% 59.01% South Korea 46,163 3.14% 61.77%
Netherlands 24,286 2.97% 61.98% Taiwan, ROC 34,617 2.36% 64.13%
Taiwan 21,731 2.66% 64.64% France 31,814 2.16% 66.29%
France 21,240 2.60% 67.23% Malaysia 28,185 1.92% 68.21%
Singapore 19,601 2.40% 69.63% Italy 28,089 1.91% 70.12%
Belgium 16,877 2.06% 71.69% Ireland 27,442 1.87% 71.99%
Hong Kong 15,809 1.93% 73.63% Venezuela 24,962 1.70% 73.69%

Australia

14,271 1.74% 75.37%

Brazil

21,157 1.44% 75.13%

Brazil

13,863 1.69% 77.07%

Saudi Arabia

20,924 1.42% 76.55%

India

12,095 1.55% 86.16%

Thailand

17,577 1.20% 77.75%

Malaysia

10,897 1.33% 78.40%

Nigeria

16,246 1.11% 78.85%

Italy

10,711 1.31% 79.71%

India

15,562 1.06% 79.91%

Switzerland

9,268 1.13% 80.84%

Singapore

15,306 1.04% 80.95%

Israel

9,198 1.12% 81.96%

Israel

14,527 0.99% 81.94%

Ireland

8,166 1.00% 82.96%

Sweden

12,687 0.86% 82.81%

Philippines

7,072 0.86% 83.83%

Netherlands

12,605 0.86% 83.66%

Spain

6,641 0.81% 84.64%

Belgium

12,448 0.85% 84.51%

Thailand

6,363 0.78% 85.42%

Russia

11,847 0.81% 85.32%

Saudi Arabia

5,245 0.64% 86.80%

Switzerland

11,643 0.79% 86.11%

Venezuela

4,782 0.58% 87.39%

Indonesia

10,811 0.74% 86.84%

Colombia

4,504 0.55% 87.94%

Hong Kong

9,314 0.63% 87.48%

Dominican Republic

4,343 0.53% 88.47%

Philippines

9,144 0.62% 88.10%

United Arab Emirates

4,064 0.50% 88.97%

Iraq

8,514 0.58% 88.68%

Chile

3,625 0.44% 89.41%

Australia

7,544 0.51% 89.19%

Argentina

3,386 0.41% 89.82%

Spain

7,476 0.51% 89.70%

Turkey

3,361 0.41% 90.24%

Algeria

7,409 0.50% 90.21%

Costa Rica

3,304 0.40% 90.64%

Colombia

7,290 0.50% 90.70%

Sweden

3,265 0.40% 91.04%



South Africa

3,172 0.39% 91.43%



Egypt

3,105 0.38% 91.81%



Others 67,023 8.19% 100.00% Others 136,661 9.30% 100.00%
Total Exports: 817,939

Total Imports: 1,469,667

See also

References

  1. ^ Current account balance, U.S. dollars, Billions from IMF World Economic Outlook Database, April 2008
  2. ^ a b c d Chapter 5-10: The International Investment Position. International Finance Theory and Policy. 6/3/2004. http://internationalecon.com/v1.0/Finance/ch5/5c100.html. Retrieved 2008-11-17.  
  3. ^ "News Release: U.S. International Investment Position, 2006". BEA. June 28, 2007. http://www.bea.gov/newsreleases/international/intinv/2007/intinv06.htm. Retrieved 2008-11-17.  
  4. ^ a b c d e Bivens, L. Josh (December 14, 2004). "Debt and the dollar: The United States damages future living standards by borrowing itself into a deceptively deep hole". Epinet.org. http://www.epinet.org/content.cfm/Issuebrief203. Retrieved 2009-06-28.  
  5. ^ "Reflections on Global Account Imbalances and Emerging Markets Reserve Accumulation" www.president.harvard.edu/speeches/2006/0324_rbi.htmlLawrence H. Summers, speech at The Reserve Bank of India, Mumbai, India, March 24, 2006
  6. ^ "The Chinese Connection" www.pkarchive.org/column/052005.htmlby Paul Krugman, originally published in May 20, 2002 in The New York Times.
  7. ^ http://www.ita.doc.gov/td/industry/OTEA/usfth/aggregate/H04t55.pdf
  8. ^ http://www.ita.doc.gov/td/industry/otea/usfth/aggregate/H04t56.pdf
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