International Trade and Finance Speech Essay

This speech delivered by the Speaker of the House to a group of reporters surrounding the topics of international trade, foreign exchange rates, import surplus and how they each impact different constituencies. It will also explain why the government would not be able to restrict importation of goods from China, or if wanted to impose tariffs. The Economy and international Trade The United States was once the highest exporter in all the world. Today, the United States has a negative balance of trade, because of the fact that we now import more goods than we export goods. An example of an import would be oil. The oil that we have imported impacts our businesses and our consumers by making gasoline and other oil derivatives more expensive. This makes prices increase because consumers will have to pay for goods from the fact that the cost of driving will go up. This is a major reason why the government is trying to encourage the development of alternate forms of energy such as coal or natural gas. The goods that the United States imports are not always negative. American consumers have benefited greatly from the imports such as electronics or apparel that is made mostly in Asia. The cost of production for these goods are lower in China and most other Asian countries, making it much cheaper for Americans to buy these types of goods that are being manufactured overseas. The reality of international trade is that production will naturally shift to places where goods can be manufactured more efficiently and at a lower price. What the United States has to focus on is developing new technologies and products of higher quality. With a focus based on innovation and quality instead of labor costs. International trade has an impact on the country’s GDP, the financial markets, and importantly university students. The GDP of the United States becomes stronger when we export goods more than we import goods. If negative trade balances become consistent it can lead to deficits, which will in turn cause the government to borrow more. If the government borrows more this will have an impact on the financial markets which could in time make it more costly for the United States to cover all its deficits. We need to promote our exports in order to help the GDP and make our country more impressive to investors. A healthier economy will create enough employment for those needed, especially university graduates that will be trained for the field. The quotas and tariffs regarding the government’s choices has a direct impact on our trade and the relations that we have with other countries. Reducing tariffs and participating in free trade agreements helps our export businesses. This is a reason why our government has in the past worked for establishing trade agreements with countries as South Korea, Panama, and Colombia. When a free trade agreement takes place the trading partners will erase their quotas or tariffs against products from America, this makes it easier for us to send our products to those countries. Trade is a two way engagement, where both are finding a way to benefit, with consumers benefiting as well and our exports getting higher. Foreign exchange rates are the rates of one type of currency converted to another. Such as the rate for exchange between American dollars and Japan’s Yen which is 76 Yen per dollar. Some currencies are fixed with others. The rates of floating currency is determined by the supply and demand. An example is if the European demand for the dollar increases, the supply and demand relationship between them will cause the price to increase of the dollar in relation to the euro. There are many factors that affect exchange rates that include interest rates, unemployment, political instability, inflation, and GDP. When our GDP becomes higher and our exports become level with our imports, the stronger our currency will be and we will have a better overall financial health. There are some people that believe in protectionist policies that include restricting goods that are coming in from China and several other countries, including imposing tariffs that would increase costs for purchasing of goods in the United States. This kind of policy would be populist and fueled with the good intentions of trying to protect our American jobs, its actual consequences would be an elevating trade war with an opposite effect. History proves that when governments have attempted to restrict trade and enforced protectionist measures, other countries will attempt to retaliate and adopt similar policies. An example is the Smoot-Hawley Tariff Act of 1930, which broke records by increasing tariffs on 25,000 goods which had an end effect of reducing imports and exports by 50% as trade partners began with similar style tariffs. This will translate into more unemployment as companies that will export their goods will see a drastic demand drop. Restricting imports from China woul d bring drastic measures from the Chinese government, and our companies would struggle as they would be unable to export goods to that part of the world. References Colander, D. C. (2010). Macroeconomics (8th Ed.). Boston, MA: McGraw-Hill/Irwin International Trade, ISSN 0020-7810, 2011, Volume 45, Issue 1, p. 79 The Journal of Economics, ISSN 0895-3309, 2007, Volume 21, Issue 3, p. 105 Foreign Policy, ISSN 0015-7228, 11/2003, Issue 139, p. 20 The American Foreign Trade, ISSN 0002-8282, 12/1928, Volume 18, Issue 4, pp. 706 – 713