U.S. trade with the European Union - Essay Example

?Introduction The history of international trade s back to the ancient times. The Egyptians and the Roman Empire were involved in trade of goods with other nations thousands of years BC. During the 17th and 18th century a movement called mercantilism surged in Europe which increased the importance of international trade. Mercantilism is referred to as the first reasonable systematic body of thought devoted to international trade (Irwin, 2001). The 20th century marked an era in which international trade boomed across the world. The United States was in the forefront of trade as this nation became the most powerful country in the world after the U.S. successfully won World War II. During that time a lot of European nations became allies of the United States. Trade between the United States and Europe increased substantially during this time. A major event that changed the course of history in Europe was the creation of the European Union and adoption of the Euro currency among member nations. The Euro was created a year before the turn of the century on January 1, 1999 (Pollard, 2001). This major event in the economic system of Europe positively impacted trade with the United States. The Euro solidified the economic position of many member nations that had weak currencies prior to the adoption of the Euro. The purpose of this paper is to discuss international trade between the United States and Europe. Importance of trade International trade is composed of the exports and imports a nation has with other countries. Exports can be defined as the amount of goods and services that a country sells to another nation, while imports are the amount of goods and services that a country buys (Varian, 2003). Imports are extremely important because they allow the citizens of a country to acquire goods they would otherwise not have access too. One of the positives effects of imports on the economy is that it can lower the prices of goods in the market. The reason that imports can lower prices is because other nations often have competitive advantages in the production of a certain good. For example a country that has a large supply of apples can sell them cheaper than a country that has scarcity of that fruit. Exports are important for a country because exports allow a country to generate revenues. The revenues generated from exports increase the amount of wealth of a country. The balance of trade between two nations is calculated by subtracting imports from exports. The desired outcome for a country is to have a positive trade balance with a trade partner. It is beneficial for a country such as the United States to have lots of trade partners. Having lots of trade partners is beneficial because it improves the opportunity of increasing exports and imports. Another good strategy for a country like the United States is to improve relations with another particular country in order to spur economic activity between both nations through the use of international trade. The United States and Europe during the last 14 years have increased their trade activity as a direct consequence of the creation of the European Union. Trade between the United States and Europe The United States and Europe are two of the biggest players in the international community. In the past trade between these two nations was scattered because many European nations had weak currencies and economic systems. All that changed in 1999 when the Euro was adopted as a common currency in Europe. Having a common currency simplified transactions. The table below shows the amount of exports and imports of the United States with Europe since 1997. Year Imports Exports Balance 1997 163272.5 181439.7 -18167.2 1998 170008.4 202873.7 -32865.3 1999 171833.7 224790.2 -52956.5 2000 187448 256766.2 -69318.2 2001 181528.7 253776.8 -72248.1 2002 163626.4 260865.5 -97239.1 2003 173062.6 284596.9 -111534 2004 191789.8 321430.9 -129641 2005 209928.4 355247.6 -145319 2006 242993.6 384007.5 -141014 2007 283068.9 407473.8 -124405 2008 324997.1 435203.4 -110206 2009 258061.6 331215.9 -73154.3 2010 285591.7 381884.6 -96292.9 2011 328654.9 448614.9 -119960 2012 329204.7 455301.1 -126096 2013* 190899.5 266194.7 -75295.2 (Census, 2013). * The 2013 numbers include only the first 7 months of the year The figures of the table above reflect millions of dollars. Trade between the United States and Europe has increased a lot since 1997. A qualitative factor that influenced the figures is the fact that Europe adopted the Euro in 1999. Based on the numbers it is clear that Europe has benefited more than the United States in their international trade. The trade relation between these two countries has increased a lot since 1997. Total trade increased by 710% since 1997. The reason that Europe has benefited more from the relation of these two countries is because Europe has exported more goods and services to the United States. During 2012 the total exports of the United States were $329,204.7 million, while its imports with Europe were $455,301.1 for a trade balance of -126,096 million. The United States has had a negative trade balance with Europe every year since 1997. Economists feel that persistent trade deficits in the U.S. are unhelpful for the global growth (Pettinger, 2010). Implications The trade balance deficit that the United States has being accumulating with Europe for decades is hurting the general well being of the United States economy. The United States government has done a poor job of intervening in the economy to foster more exports from the U.S. to Europe. The U.S. is losing its ability to generate wealth. The best way for a country to accumulate wealth is by having a positive trade balance with multiple trade partners. Europe represents one of the most powerful regions in the world. The U.S. has to take measures in order to start reducing its trade imbalance to turn things around. The first step to turn things around is to change the trend from a growing trade balance to reduce its deficit. Recommendation / Solutions The United States and Europe have reached a point in their trade relation in which both countries have become dependent on each other for the exchange of goods and services. A bilateral agreement between the two countries is currently being negotiated by the European Commission (Europa, 2013). A bilateral agreement could create favorable terms for the United States that can help increase their export activity. The elimination of tariffs between the two nations can help spur trade activity. The bilateral agreement should also decrease regulations (Baker, 2013). One of the main problems that United States faces is that their society has being raised believing that consumerism is an acceptable behavior. The U.S. educational system has to start teaching the youth that consumerism is an undesirable behavior and that saving is a preferable outcome. The government of the United States has to take measures to increase the production of goods and services. Producing more is one of the ways to increase the chance of being able to generate more exports. In regards to the U.S. / Europe trade relation the government of the U.S. has to generate a study to determine which markets and industries are more attractive for the European consumer. Once these markets and industries are identified the government has to invest money to attract corporations to enter these industries to increase the production capacity of the nation. The U.S also has to do a better job of attracting foreign investors to increase the amount of factories operating on American soil. The United States currently has a competitive advantage in the service industry due to the fact that the U.S. economy has become knowledge based. The service sector has the greatest possibility of being the driver of the economy, thus the country has to make a concerted effort of using that advantage to improve its trade balance with Europe. Conclusion The economic well being of countries are highly dependent on how the government of these nations handle their international trade relations with the over 200 countries across the world. The United States during the early part of the 20th century did a much better job of creating wealth by exporting more goods than it imported. During the latter half of the century the country stopped emphasizing the importance of maintaining a positive trade balance with its different trade partners. The U.S. did not see the rise of Europe despite the fact that it was obvious that after the adoption of the Euro in 1999 Europe was going to become a powerhouse in the international scene. Since 1999 the U.S has being losing ground in its trade balance year after year. The imports of the U.S with Europe are rising at a greater rate than its exports. The trade deficit with Europe is causing the U.S. dollar to lose value in relation to the Euro currency (Clearpictureonline, 2008). When a currency loses value in relation to another the citizens are adversely affected because they are not able to buy as many things as in the past. The U.S. has to immediately attend the trade deficit it has with Europe by finding ways to turn the table and increase its output of exports. References Baker, D. (2013). The US-EU trade deal: don’t buy the hype. Retrieved September 27, 2013 from http://www.theguardian.com/commentisfree/2013/jul/15/us-trade-deal-with-europe-hype Census.gov (2013). Trade in Goods with Europe. United States Census. Retrieved September 27, 2013 from http://www.census.gov/foreign-trade/balance/c0012.html Clearpictureonline.com (2008). Shootout: Is the Current Trade Deficit a Big Problem? Retrieved September 27, 2013 from http://www.clearpictureonline.com/SO-Trade%20Deficit.html Europa.eu (2013). Countries and regions: United States. Retrieved September 27, 2013 from http://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/ Irwin, D. (2001). A Brief History of International Trade Markets. Retrieved September 27, 2013 from http://www.econlib.org/library/Columns/Irwintrade.html Pettinger, T. (2010). Questions on Trade Deficit and Debt. Retrieved September 27, 2013 from http://www.economicshelp.org/blog/2258/economics/questions-on-trade-deficit-and-debt/ Pollard, P. (2001). The Creation of the Euro and the Role of the Dollar in the International Markets. Retrieved September 27, 2013 from http://research.stlouisfed.org/publications/review/01/09/0109pp.pdf Varian, H. (2003). Intermediate Economics: A Modern Approach (6th ed.). W.W. Norton & Company: New York. Read More