International Trade and Finance The United States imports many goods and services, as well as exports goods and services in the global economy. International trade affects the United States’ Gross Domestic Product (GDP) and domestic markets. The government can affect international trade by imposing tariffs and quotas on imports. Foreign exchange rates affect how much is brought and sold abroad. International trade is beneficial to the United States, but can sometimes be seen as unfair competition to the American workforce and businesses.
Trade Surpluses and Deficits A country has a trade surplus when exports exceed imports. This situation will initially create wealth for the country, but in the long-run the country’s currency
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Effect on GDP and Domestic Markets International trade can effects GDP in two different ways, expanding or contracting the figure. When goods and services are being produced in the United States, it creates income and adds to the productivity of the nation. This increased productivity is included in the calculation of GDP. When goods are imported, this does not increase the United States’ GDP. The money is going out of the country. The greater the imbalance between imports and exports, the greater affect international trade will have on GDP. Domestic markets are affected by international trade, as well. Globalization has increased competition for businesses all over the world. Consumers and businesses can buy and sell anywhere in the world through the Internet. International trade greatly affects the way businesses market and price their products. Domestic markets have more competition through international trade.
Tariffs and Quotas A tariff is a tax which a government imposes on certain imports to limit the amount of the goods entering their country. The tariff creates a higher price for consumers, therefore decreasing demand for the good. There are several reasons why a government would want to limit imports; to protect domestic jobs, its citizens, and infant industries (Investopedia, 2012). Countries will also impose tariffs as retaliation to other countries that have in some way made them mad or have