After the Second World War, the world economies adopted liberalization, free market, and open trade, which affected the countries policies. Open trade facilitated by technological advancements leads to economic globalization, investments, and economic improvement of impoverished nations. However, the trade deficit caused by open trade is dangerous for the US in the long term because it lowers wages and puts American factories out of work.
Open trade catalyzed the formation of a free market and globally networked production services among countries. Social policies focus on social inclusion and the interconnectivity of global economies, causing them to operate for common goals. Thus, by trading with other states, the US has an opportunity to adopt valuable technologies. Some decades after the Second World War, Japan started investing in US car manufacturing, giving them a chance to learn Japanese practices and become more client and technology-oriented (Maswood, 2021). Therefore, globalization through open trading enhances the integrity of global supply chain networks.
Another benefit of open trade is the reduction of tariffs that complicate goods flow and restrain investments, helping many countries to overcome poverty and unemployment. As Kumar (2022) believes that due to economic globalization, “the self-reliance of the developing countries can be ended.” India has Free Trade Agreements with partner companies that level up the citizens’ living conditions. The investment from partner countries is around 90 billion dollars spent on India’s necessities. Apart from this monetary value, the country negotiates to expand its export, increasing workplace and employee wages.
US trade tariffs cause trade diversion with other nations, deteriorating its relations with some strong economies. Manipulating exchange rates decrease foreign export prices as the US signs long-term contracts with partners. For the US, these tariffs sometimes are more harmful. For example, after imposing changing trade agreements, the US had some conflicts with China, resulting in low imports of a wide range of processed intermediate goods from China (Llano, 2021). Eventually, people lost a chance to buy items for a low value.
The trade deficit occurs due to the imbalance between savings and investment rates, proving that the US imports more than exports. Hufbauer (2017), a Senior fellow at the Peterson Institute for International Economics, believes that the deficit brings intangible resources from abroad for investment in the American economy. Foreign employers pay higher wages and invest more in research, forcing US manufacturing to evolve. In the short term, the deficit stimulates the US economy, bringing benefits to companies and consumers who purchase goods for lower prices.
On the other hand, Peter Navarro, an ex-advisor to the president on trade, believes that the deficit is dangerous for the US because it “depends on foreign debt and foreign investment to finance it. (McBride & Chatzki, 2017)” He highlights that it destroys workplaces and interferes with factories’ operations by subsidizing the items and selling them for lower prices. For instance, 3.4 million jobs were lost due to the manipulating exchange rates and surge in Chinese imports to the US. Thus, Navarro’s opinion is correct because such trad fluctuations can cause political instability. If a country does not want to lose the workforce, it should focus on eliminating the trade deficit.
To conclude, the US implements various strategies to improve its economics. Open trade benefits many countries through the integrity of supply chains, reduction of tariffs, and elimination of unemployment. In the beginning, a trade deficit is helpful for companies because they get a chance to improve their conditions, but after some time, thousands of people lose their jobs in manufacturing. Thus, the US tries to minimize its effects on the people.
References
Debroy, B., & Kapoor, A. (2022). A promising panel: Facilitating Free Trade Agreements. Business World. Web.
Hufbauer, G. C. (2017). Is the US trade deficit a problem? Peterson Institute for International Economics. Web.
Kumar, T. (2022). How the policies of globalization exploited the resources and economy of the developing countries. Counter-Currents. Web.
Llano, C., Perez, J., El Khatabi, F., & Steinberg, F. (2021). Weaponized trade policy: The impact of US tariffs on the European automobile sector. Economic Systems Research, 33(3), 287–315. Web.
Maswood, S. J. (2021). Origins and consequences of economic Globalization: Moving beyond a flawed orthodoxy. European Journal of International Relations, 27(2), 428–449. Web.
McBride, J. & Chatzky, A. (2017). The U.S. trade deficit: How much does it matter? Council on Foreign Relations. Web.