Introduction
Trade balance is a component of gross domestic product which represents the difference between the monitory value of exports and imports of out put of an economy over a specific duration of time (Trading Economics, 2010). A deficit in trade balance is interpreted to mean that exports are insufficient to pay for the total imports. A trade surplus exists when imports are less than the net exports. When the net imports and exports are at the equilibrium, the vale of domestic product is only dependent on the domestic values such as public expenditure, investments, and consumption. In case the import and exports increase simultaneously, the trade balance remains unchanged. However, it is important to note that any difference in dynamic between imports and exports has a great effect on trade balance.
According to Trading Economics (2010), United States which is the most important nation in the international trade reported a trade balance of 49.9 billion US dollars in June this year. Nonetheless, for quite some time, the country has remained to be the leader in imports and among the top three exporters. The current trade deficit illustrates the increased need for some intervention measures. Bent on that, this paper is a brief for the President Obama the current president mainly focusing on the steps to take in order to improve the trade balance.
Promoting Use of Alternative Source of Energy
The rising prices of oil are just one of the very may factors that contribute to the trade deficit in United States. US consume a lot of oil as a source of energy which is mainly imported from the oil producing countries. Consequently, oil imports contribute greatly to the increase of foreign expenditure, a condition that ends up contributing to the increase of trade deficit. It would therefore help greatly if the president can promote the use of alternative sources of fuel which may include corn or solar energy as well as any other type which is cost effective. Use of alternative sources of energy will lead to a reduction of expenditure on imports which can eventually help to improve the trade balance.
Improving and Increasing Exports
A trade deficit results not only from increased imports but also in decreased level of US exports. The economy of United States is growing at a very high rate and as a result, United States goods and services become too expensive for other countries a condition that leads to reduced exports. In addition, the exchange rate of the dollar with other countries continues to increase and it becomes increasingly hard for other countries to afford US goods and services. It will therefore be important if the President can focus on formulating trade polices that will influence other countries to export United States goods and services. For instance, the country can reduce some tariffs on exports and by so doing, other countries will be in a position to afford the US goods and the end result will be an increase in exports which can eventually improve the trade balance (Palley, 2006).
Reducing Imports
An increase in the imports has contributed greatly to the United States trade deficit since the country imports a lot from a country like China. The main types of imports are inclusive but not limited to fuels, production machinery, beverages, food, fuel, and industrial non fuel supplies. The trade deficit can therefore be reduced if domestic production was encouraged in order to reduce the countries dependence on imports. There are many measures that can be taken to reduce the imports but is important to note that one measure cannot be applicable to all products. For instance, increasing the import duty can be applicable to all those goods that can be manufactured locally. By so doing consumers will prefer to buy the locally produced goods because they will be cheaper than imported products (Bates, 1999).
Devaluing the US Currency
Reducing the value of the United States currency can have various effects that can help to improve trade deficit. Devaluing the US dollar should lead to an increase in the value of other foreign countries’ currency. Consequently, the condition will lead to a high price for imports which can perfectly reduce the demand for the goods US imports from other countries. As a result, the country will reduce the total number of imports and increase the demand for domestic products. Similarly, the lower dollar value will have an effect on exports as they will end up becoming cheap in the foreign market. As a result, the demand for the United States goods and services will increase a condition that can help increase the total exports. Eventually an increase in exports and a decrease in imports will eventually help to improve the trade balance (SantaLuca, 2005).
Conclusion
It is a real phenomenon that unless some quick measures are taken, United States trade balance with the rest of the world may continue to increase. However, if the president can work towards implementing the above proposed measures, the condition can improve. Nonetheless, it is important to note that since the condition has taken some time to develop, changes may not take place immediately. In addition, it is important to try and regulate the effects of globalization that have increased the trade deficit especially with specific countries like China. Focusing on major causes of the high trade balance may help to come up with more measures to manage the situation. Finally, it is important to avail more funds that can facilitate more economic research that can be beneficial in the international financial management.
References
Bates, J. (1999). Trade Deficit Review Commission. Retrieved September 8, 2010, from http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=108&subsecID=900009&contentID=1759
Palley, T. I. (2006). The Troubling Economics and Politics of the US Trade Deficit. Retrieved September 9, 2010, from http://www.thomaspalley.com/docs/articles/economic_development/trade_deficit_nsfr.pdf
SantaLuca, A. (2005). Can a Lower Dollar Really Improve the Trade Deficit? Retrieved September 8, 2010, from http://www.safehaven.com/article/2455/can-a-lower-dollar-really-improve-the-trade-deficit
Trading Economics. (2010). United States Balance of Trade . Retrieved September 7, 2010, from http://www.tradingeconomics.com/Economics/Balance-of-Trade.aspx?Symbol=USD
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