Trade and Globalization

The US measured a trade deficit of $49 billion as of March 2018 slightly lower than the trade deficit of $50.2 billion in May 2011. After weighing the arguments against sustaining a trade deficit, I find the argument that trade deficits are a representation of future growth sacrifice as more persuasive because of various reasons. First, it is true that a nation with a trade deficit buys more that it produces. A trade deficit occurs when a country imports more than what it exports. This means that such a country buys more that is why the imports are higher than producing considering that it exports less. Under such a situation, instead of making investments essential for future growth, investments are made for present consumption. This means that by sustaining trade deficits, the country is sacrificing its future growth.

I find the argument that trade deficit is a sign of economic growth more persuasive in arguments for sustaining a trade deficit. This is because investors tend to increase their exports to a certain country when its economy is said to be strong. One sign of economic growth is the ability of consumers to have surplus money which they use in buying both domestic and foreign products. Therefore a country would only have more imports than exports when it has a strong economy. For example, when the US had a booming economy, it experienced higher levels of trade deficits. However, such an argument is only fit for large economies. When a developing country imports more than it exports it could be a sign of economic weakness rather than economic growth.

There exists a relationship between the potential for financial crisis in a country and trade deficits. Occasionally, trade deficits that are large can create a situation that is prone to financial crisis. For instance, when investors accumulate large foreign money such as US dollars, they are forced to invest the currencies in the foreign land mostly in bonds, and other assets. If these investors raise concerns over the trade deficits and its effects on the value of the currency for example its effects on the value of the dollar, may be impelled to sell their assets around the same period. This can cause the value of the currency to fall within a short time and hence the potential for financial crisis from sustaining a large trade deficit.

Trade deficits can have a positive economic effect in a country. For instance, when investors from foreign countries realize that a country has a trade deficit, more will be attracted to the country and seek to invest there. In such a case, the country with trade deficit experienced an economic growth. Additionally, having more foreign investors opens up more opportunities for the country in foreign countries where more exports can be directed associated with a positive economic effect. The ability to sustain trade deficits by any state depends on the strength of the economy. The stronger the economy the higher the potential of sustaining trade deficits.

Question 12

The post-war recoveries of developed countries such as Japan and Europe and the continued growth of developing countries created massive markets for the US investment and exports. The new commercial opportunities gave farmers, workers, and companies in America numerous benefits. The living standards of the Americans improved a great deal. However, in the past 20 years, the changes in trade and production in the world changes the situation. The development of other countries in manufacturing abilities made them have a competitive advantage over American producers. The lower wages was a cost advantage for the countries. As a result, US started importing more manufactured goods that were cheaper compared to domestic goods. Additionally, some companies started faced closure in the US while being opened on other countries for the cheaper cost of production. In summary, the dominant manufacturing trend in America has been changing to the rise of the service sector and high technology production.

The transition of the American economy has seen the creation of sector jobs and jobs in higher-tech manufacturing. This has seen workers who are highly skilled through training and education benefit most from the transition. Workers with limited skills experienced lose from the transition in America. The increases in foreign imports and closing of some industries affected them because the majority of them are employed in these industries due to their limited skills. The majority have lost their jobs affecting the living standards.

To smoothen the transition for the affected workers, the US government sponsored programs that aim at helping the American workers to acquire new skills that are in line with the new fields. For instance, the government sponsored the Trade Adjustment Assistance program that aimed at equipping workers with new skills for the available higher skilled jobs. As an additional measure, the government should let go of the old industries reducing the great expense of the taxpayers. From federal to state and local levels, the governments should focus on subjecting American workers to programs that equip them with skills that are necessary for service sector and high technology production. This way the workers will be able to secure employment positions in the country.

The schools and universities in America have introduced the concepts of the service sector and high technology in response to the economic changes. Issues to do with high technology in production or employment in service sectors were not given attention in schools decades ago but they are currently being taught in schools. Currently, students are being employed in service companies and by companies that operate under high technology. This is different from before because very few such companies existed and only a few people with high degree of skills were hired.

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