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International Trade - Research Paper Example

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In the wake of globalization and liberalization, international trade has increased manifold. In fact, it is in the benefit of international consumers as they get the quality goods at the lowest possible prices; however, many economists oppose it as it affects domestic manufacturers. …
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International Trade
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Download file to see previous pages It is worth pondering on the root causes behind the ever increasing global trade. The paper aims at exploring how the trade agreement called NAFTA that the US has entered into with Mexico and Canada has impacted on the domestic industries and the US economy at large. The paper would also explore how the devaluation of the US Dollar against the Chinese Yuan can bring respite to the US manufacturing industries. Suranovic (2010) describes about some important key-reasons that decide about any trade between the nations and they are worth pondering to understand the burgeoning global trade. Resource Advantage Each country is endowed with certain natural resources such as minerals, water, land, fossil fuels, and essential raw materials and accordingly their strength lies in manufacturing those finished goods where such resources are necessary. Obviously, such resource pool will put certain countries in advantage over others. Technological Superiority Technological superiority of one country over other in a particular product will facilitate production of better quality goods at lower cost and that superiority puts one country ahead of others in a particular good. If the US produces Boeing aircraft and fighters or other sophisticated warheads then it is because of the technological superiority that the US exerts over others in this field. ...
It is a fact that the US has absolute advantage in producing grains as it needs fewer real resources relative to the most of the countries in the world. The availability of huge agricultural land and the use of machines are the major reasons in having absolute advantage in agriculture. The country uses minimal labor per unit area of agricultural land increasing the productivity levels manifold; however, it is essential to note that absolute cost advantage does not determine the production and allocation of labor for producing a good but it is the comparative advantage that gives rise to the production of a particular good in that country. The comparative advantage takes into account the opportunity cost while producing a particular good in that country (Suranovic, 2011). This fundamental reality drives the trade globally and the NAFTA agreement is to be seen in this light. US Trade Balance with NAFTA Partners and the World in the year 1989 and 2009 (In billions of current USD) Source: O’Leary et al, 2012, p13. It is important to note here that there is no appreciable change in balance of trade in agriculture commodity with Mexico and Canada; there is no significant impact on the US labor force involved in agriculture. In all merchandise trade with Mexico and Canada in 2009, imports have increased by almost 45 billion and 11 billion USD respectively but so is the case with world trade which shows negative balance of 500 billion USD. This clearly shows that NAFTA trade has followed the world trend only and nothing specific can be attributed to NAFTA agreement that the US has entered into (O’Leary et al, 2012). Below mentioned table indicates about the employment changes between 1989 and 2008 in the key industries in the US. This ...Download file to see next pages Read More
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