International Trade and its Impact on the U.S. Economy

Abstract

The international trade sector of the U.S. economy continues to draw attention in economic and political circles. It is true that, the international market has become increasingly important as a source of demand for U.S. production and a source of supply for U.S. consumption. Indeed, it is substantially more important than is implied by the usual measures that relate the size of the international sector to the overall economy. This paper explores the role international trade now plays in the U.S. economy and answers the important questions for economic policy: How does international trade affect economic well-being? Who gains and who loses from free …show more content…

As with exports, a narrower measure than total GDP provides a markedly different picture of the importance of imports to the domestic economy. With imports, however, goods output as a standard of comparison does not contain the same intuitive interpretation as it did for exports. Thus, rather than looking at goods output, let us now consider goods consumption as the standard of comparison. What change has occurred in the relation of goods imported to total goods consumed? Not surprisingly, imports of durable goods were strongly dependent on the strength of consumption in the domestic economy. The stronger the domestic consumption of durable goods, the stronger the rate of growth in durable goods imports. This explains the increase over time in the import share of consumption. Over the past thirty years the international sector has become progressively more important to the U.S. economy. Indeed, within the durable goods industries, the international environment has become vital to the economic well-being of domestic producers and consumers. With imports of durable goods accounting for two-fifths of durable goods consumption, a far larger share than a decade or so ago, the domestic economy has become more dependent on foreign suppliers. Some view this development with mixed emotions. Certainly it means that there is a higher degree of competition in domestic markets than previously. For those who