StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Dose Trade with Low-Wage Countries Cause a trade Deficit in the High-Wage Country - Assignment Example

Cite this document
Summary
According to the U.S census bureau, the U.S trade deficit increased from $500 billion in 2010 to $558 billion in 2011. Two-third of the…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.5% of users find it useful
Dose Trade with Low-Wage Countries Cause a trade Deficit in the High-Wage Country
Read Text Preview

Extract of sample "Dose Trade with Low-Wage Countries Cause a trade Deficit in the High-Wage Country"

Trade imbalances The term trade imbalance refers to the trade deficit and the large trade surpluses in China and other countries from whom it imports from. According to the U.S census bureau, the U.S trade deficit increased from $500 billion in 2010 to $558 billion in 2011. Two-third of the growth of the trade deficit was as a result of increased importation of crude oil and refined petroleum products. Us trade deficit with China in 2010 was $273.1 billion. The Business and Industry Council’s interest in discouraging imports is for the best interest of American citizens.

This is because; absorption of U.S domestic demand for goods by exporters in china and oil exporting countries has widely suppressed domestic job creation in the U.S. In 2011 and 2010, the increasing U.S trade deficit with China led to 2.8 million jobs displacement in U.S (Bordon, 2011). Other factors that have led to the shrinking of the manufacturing sector include rising technological changes which have increased labor productivity, forcing firms to hire few workers. It is incorrect for the Business and Industry Council to blame imports alone for the international imbalance that have led to manufacturing crisis.

Manufacturing crisis refers to the long-run trend of falling employment in the manufacturing sector in the United States. The macroeconomic policies that China has adopted of currency devaluation, increasing U.S dollar holding and, subsidies advancement to a range of industries are the major cause of the high trade deficit. By 2011, China had accumulated $3.26 trillion in foreign reserves in U.S treasuries. In Chinese auto-parts industry, both domestic and foreign owned plants have received $27.

5 billion in government subsidies. In 2006, 58.2 per cent of China’s exports were from the foreign firms operating in China. These firms are taking advantages of the subsidy policy and availability of cheap labor in China. China and other low wage rate countries enjoy availability of cheap labor, relative to their counterparts in the US and other developed countries. This is the area where they have a comparative advantage in manufacturing.Undervaluing the Chinese currency, yuan, has expanded the U.

S trade deficit hurting the U.S manufacturing and depressing the U.S employment. According to the congress research service report (2008), China’s foreign exchange rates reserves increased from $403 billion to $1.5 trillion between 2003 and 2007.in 2010 the reserves were $3.2 trillion. Lutes argue that, lax U.S financial regulations that have fueled over borrowing and overconsumption of Chinese products are the major policies encouraging the increasing trade deficit. Not all high wage countries that trade with China have a trade deficit.

Netherlands and Germany are among the high wage nations that trade with China and yet they are enjoying trade surplus. In conclusion, Business and Industry Council allegation that the international imbalances are caused by excessive imports, which, in turn, are fueled by low wages in other countries, is not in itself entirely true. As explained above, there are many factors that cause international imbalances.Work citedLutes, John. Balance of payment and economic growth: New York: Herper and Brothers, 1959.

PrintBordo, Mecher. (2003).Exchange Rate Regimes, and Globalization: Chicago: University of Chicago, 2003. Print.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Dose Trade with Low-Wage Countries Cause a trade Deficit in the Assignment”, n.d.)
Dose Trade with Low-Wage Countries Cause a trade Deficit in the Assignment. Retrieved from https://studentshare.org/macro-microeconomics/1617242-dose-trade-with-low-wage-countries-cause-a-trade-deficit-in-the-high-wage-country
(Dose Trade With Low-Wage Countries Cause a Trade Deficit in the Assignment)
Dose Trade With Low-Wage Countries Cause a Trade Deficit in the Assignment. https://studentshare.org/macro-microeconomics/1617242-dose-trade-with-low-wage-countries-cause-a-trade-deficit-in-the-high-wage-country.
“Dose Trade With Low-Wage Countries Cause a Trade Deficit in the Assignment”, n.d. https://studentshare.org/macro-microeconomics/1617242-dose-trade-with-low-wage-countries-cause-a-trade-deficit-in-the-high-wage-country.
  • Cited: 0 times

CHECK THESE SAMPLES OF Dose Trade with Low-Wage Countries Cause a trade Deficit in the High-Wage Country

The United States Economy

However, the magnitude by which this disequilibrium is caused depends upon the circumstances prevailing in each economy and varies from country to country.... Introduction to Microeconomics The entire concept of economics is based upon the demand and supply in the market....
6 Pages (1500 words) Term Paper

Is There a Danger of Inflation in Greece

There are allegations that the country provided false information on its economic performance between 1997 and 1999 to converge into the EMU with the observers hinting that its actual performance would not have allowed the country to join the euro zone ( Athens News Agency). Greece ultimately joined the Euro monetary area as its 12th member from January 1, 2001 after the European finance ministers' council decided on June 19, 2000 that the country had fulfilled all the convergence criteria and approved its accession (Micco et al, 61)....
11 Pages (2750 words) Essay

The Macroeconomic Environment of Business

hellip; This will cause a low level of demand-deficient unemployment level.... Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs - or are in the wrong part of the country or world to take the jobs offered....
16 Pages (4000 words) Essay

The Global Economy: The U.K

s debt is five percent of GDP in a given year and Denmark's debt ratio is nine percent of GDP, we have a reasonably accurate means of examining the comparative debt level even though the economic output of each country is different.... that the country's credit rating may be lowered over fear... This was considered acceptable because the economies of the two countries were growing at between four and six percent per year.... The current debt to GDP ratios for both countries are clearly unsustainable....
14 Pages (3500 words) Essay

Rise of the Internet

A service or product is no longer limited to the shop, nor the clients limited to a certain town or city; it can be the whole country, or even the world.... Health care ensures that employees can continue working and education ensures that people can find creative-type jobs in the future, if ever governments decide to ship grunt-type jobs out of the country.... Because of this, the many countries are gaining power in the global market, but this does not necessarily create a level playing field....
10 Pages (2500 words) Essay

Does Inernational Trade hurt the Economy

In reference to a study conducted by Flaherty (1999), international trade improves a country's technology and improves the productivity levels in turn.... For many years, the country had experienced deficits in its trade balance.... Flaherty (1999) denotes that a country's labor can drop due to trading with countries with cheap labor.... ince a country cannot sufficiently produce goods for its entire population, it has to rely on international trade to acquire goods from other countries....
2 Pages (500 words) Essay

Contradicting Effects of NAFTA - the Largest Trading Bloc in the World

Agreements such as NAFTA agreement that was unprecedented by the United States – Canada trade agreement has had both positive and negative effects in the growth of the economy of the country.... The paper "Contradicting Effects of NAFTA - the Largest Trading Bloc in the World" concerns the massive unemployment in the US since the recession of 2001, the reduced trade barriers such as tax and tariffs, protection of foreign investors by helping them leap maximum benefits from the agreement....
11 Pages (2750 words) Term Paper

Success of the US Government and the Federal Reserve: An Evaluation

hellip; Whenever we are going to judge the ability of the government of any country we have to judge it through many aspects and perspectives.... The fact is that the government of the country is responsible for driving out the tempo of economic development.... This may be said to be attributable to the budget deficit of the government.... In the fiscal year 2007, the budget deficit of the Bush administration accounted for $354 billion....
9 Pages (2250 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us