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The Impact of International Trade on U.S. Economy - Essay Example

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The world has witnessed rapid economic regionalization in the last decade, as evidenced by the proliferation of free trade agreements among nations. By July 2007, the number of negotiated and effected agreements had risen to 205. …
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The Impact of International Trade on U.S. Economy
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Download file to see previous pages By July 2007, the number of negotiated and effected agreements had risen to 205. The United States has also had its share in the international trade (Peridy, 2005). She has entered into trade agreements with countries from Africa, South East Asia, and Europe. International trade brings along certain factors, which impact on the U.S economy, either favorably or unfavorably. Some effects of this trade include provision of new markets and access to goods and services at subsidized prices (Sun and Reed, 2009). In the present paper, the impact of international trade on the U.S economy is investigated. It is hypothesized that international trade favorably impacts the U.S economy. The literature reviews that follow will attempt to illustrate and support the hypothesis. Literature Review In a research article by Peridy (2005), three crucial questions were posed to guide the study. First, does the United States face a trade deficit with respect to Middle East and North American (MENA) countries? Secondly, has the deficit resulted from the Euro-Mediterranean (Euromed) agreement? Thirdly, what trade potential does the US hold in this area? (Peridy, 2005). The focus of the investigation is on the trade relations between the US and MENA countries, specifically favorable trade using a short, descriptive analysis. It is hypothesized that, the US will trade unfavorably with the MENA countries comparatively to other OECD countries. The investigation focused on market shares and export levels, and calculated several indexes of export position between the US and MENA countries. The result of this investigation agreed with the hypothesis that there was unfavorable US export performance with respect to MENA countries in comparison with other OECD nations. The result indicated that majority of MENA countries are ranked after other OECD countries in US export preference list. In comparison to other exporters, the US seems to export four-times lesser than the MENA countries (Peridy, 2005). The difference in trade between the US and MENA countries, and the US and Euromed countries may partially be attributed to the long distance between the US and MENA markets, which infers high transport cost to the trading partners (Peridy, 2005). The result of the relative market share also reveals the unfavorable position of trade between MENA countries and the US, with the US having potential in the MENA markets. It is also reported that exports from the MENA countries to the US has continued to dwindle. Contrastingly, the US preserved its favorable position relative to the other OECD countries (Peridy, 2005). These results come together to affirm the hypothesis that international trade favorably impacts on the US economy. One shortcoming of the study is that it relies on predictions that are prone to change (Peridy, 2005). It rests on out-of-sample predictions that calculate what proportion of MENA countries’ exports if they would have behaved akin to countries fully incorporated into the world economy. However, this approach may deter the ambiguous interpretation of residuals. Next, the topic of measures of international relative prices in relation to its impact on the US economy is discussed with China as the primary point of reference. In a research article by Thomas, Marquez, and Fahle (2009), several specific questions are addressed. First, is there a disparity in pricing between exports from China and those from her trading partners? Second, does the World Development Indicator (WDI)’s new price index affect the appraisal of USA’s international relative prices? Third, does the weighting scheme employed in aggregating prices ...Download file to see next pagesRead More
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