Current state of the US macroeconomy and international trade impacts

U.S. Macro economy

economy which was considered to be the world's largest has still not been able to recover completely from the financial crisis and resulting recession that hit in 2008. At the national level, spending increase to more than 25% of GDP in 2010, later in 2011 gross public debt exceeded 100% of GDP. The process of recovery for U.S. economy in the first quarter turned out to be weaker than expected. From January through March, the gross domestic product (GDP) of the nation grew at a 1.8% annual rate. The economy of U.S. has grown for 15 consecutive quarters; however the pace of those gains was about 2% which was actually in the weakest recoveries since World War II. U.S. economy is being held back by its tightening fiscal policy. In this year, the spending cuts are estimated to be $85 billion and expected to grow to $109 billion in 2014. The financial crisis caused by the recession starting in 2007 challenged the dominant ideas of economic as well as policy (Ormerod, 2010). In addition, political polarization seems to have reached levels unmatched since the Civil World War, which has limited the capability of politicians to deal efficiently with current economic problems (McCarty, 2006).

In case of surplus imports being brought in United States it means that the price of the products is going to drop. Lower price of goods is beneficial for the consumers. Whenever surplus of imports are brought in the United States of America, the American companies tend to suffer due to the inflated foreign competition. As a result of surplus of imports those domestic producers who are competing with imports are ones to suffer due to fewer sales and lower prices. However, domestic consumers are the one at advantage when U.S. is hit with import surplus. Within the trading community there must be a balance between surplus and deficit. In instance of import surplus eventually trade deficit is created as the country is consuming more in comparison with the exports and production volumes. For instance, in case of the oil industry, U.S. relies on foreign countries to attain gas, oil and additional petroleum related products. This circle initiates a supple and demand effect in addition, allows the exporting countries to use the strategy of price gauging (Danielson, 1994).

The U.S. is considered to be the leading contributor in terms of international trade given that the country highly depends on products imported from other countries and tend to import more goods than exporting them. The effect that international trade has on GDP is that employment and GDP goes hand in hand meaning that as employment moves out of the U.S. smaller GDP is created as an effected. Additionally, imports of goods result in lower prices for goods, which consequently make things for the U.S., based companies to compete against the imported goods that come with lower cost and price. The imported goods cause issues for the domestic market. In order to be more competitive and reduce costs quite a few U.S. companies are going to move out as this way they can cut costs and avail cheaper labor.

In order to examine the impact that international trade has on the nation's GDP, domestic markets and university students one needs to observe the net exports. Given that the numbers of net exports are positive it denotes that the GDP is also going to increase. In case they are negative it implies that the GDP will be decreased. When the GDP decreases it results in higher taxes that have a direct effect on domestic markets and university students. With higher taxes those students who are interested in attending university have to work things out as with the increase in cost of education it makes hard for students to make ends meet. University students are also affected as jobs are not being created and sustained in the U.S.

The term tariff can be defined as a tax or duty that the domestic government puts on imported goods. Akin to sales tax, usually tariffs are levied as a percentage of the declared value of the good. However, tariffs for every good are often different and don't apply to domestically produced goods. Due to a foreign tariff the costs of domestic producers are increase causing them to sell less in those foreign markets. When the price of the good with the tariff increases the consumer is forced to purchase less quantity of those goods. As of result of fewer purchases made by the consumers, in other industries domestic producers are selling less, causing a decline in the economy (Moffatt, 1965).

The exchange rate amid two currencies at which one currency is going to be exchanged for another is defined as foreign exchange rate. The foreign exchange market is responsible for determining this rate. The two factors that determine the exchange rates of a country are its supply and demand. Exchange rate can be defined as the rate at which the currency of one country may be converted into another. Exchange rate is made use of when converting one currency to another, or for trading in the foreign exchange market. Additional factors that have an influence of exchange rate include; inflation, interest rates, state of politics and economy of a country.

The change made in the real exchange rate leads to instabilities in short-term capital flows.In order to determine exchange rates there a number of methods that can be followed. To determine a flexible or floating exchange rate the market forces of supply and demand are used. The government decides the fixed exchange rate for a period of time based on the value of another country's currency for instance; U.S. dollar. In case of a managed exchange rate the government gets involved in the market in order to influence the exchange rate or set the rate for short periods; for example, a day or a week.