The Foreign Sector is becoming an increasingly important component of our nation’s GDP. What factors are contributing to this trend? While the United States has generally been supportive of `free trade`, several policies, especially in the ocean trades area, serve to undercut this otherwise `open` policy. Please discuss.
In the past few years, business terms such as business process outsourcing became common. BPOs, as they are commonly known, have sparked the debate that jobs are leaving the United States to countries with lower labor rates. However, it seems that this concern is unwarranted as more and more foreign companies are building their headquarters in the country. This exodus into the country has increased the importance of the contribution of the foreign sector in the country’s gross domestic product or GDP. The increasing appeal of the United States to foreign investors rests on its technological lead said Levey and Brown (2005, p. 4). David Frum said that the reason why the contribution of foreign nationals in the country’s GDP is that these foreign nationals have no better investment alternative in their own countries or in other countries aside from the United States (2004, p. A. 18).
Frum emphasized, however, that this trend is nothing to worry about. He said that “the eagerness of non-Americans to purchase U.S. assets over the past three years underscores a problem that — unlike the current account deficit — actually is worth worrying about: The fact that people in Russia, France, and Japan see so few investment opportunities in their own countries that they would prefer to put their money into something, anything, located in the relatively fast growing United States” (Frum, 2004, p. A. 18).
Current trade policy in the United States stresses establishing free trade areas with partners all over the globe. The reasons behind this include enhancing goods and services trade; stimulating investment flows; extending standards on intellectual property rights, labor, and the environment; and addressing geopolitical concerns. The United States, considered as the world’s largest economy, have been proposing global reductions in tariff ad non-tariff barriers to the World Trade Organization or WTO while simultaneously launching discussions for free trade areas with partners in the Americas, Africa, the Pacific, and the Middle East. This is a proof that the country is increasing its participation in regional and bilateral trading arrangements over the next few years. However, this participation has become the center of another economic debate.
“Is America’s trade policy going backwards or forwards?” (The Economist, 2007, p. 47). To the uninitiated this might seem the case, but it actually isn’t. The free trade policies adopted and supported by the United States are those that further its economic agency. Take for example the 20 percent tariff the Bush administration imposed on importations of glossy paper from China. Although the import for the said product amounts only to 0.1 percent of the total goods the country buys from China, the act is very symbolic. “For more than two decades America has refused to impose anti-subsidy tariffs on countries, such as China, that it deems to be “non-market” economies” (The Economist, 2007, p. 47).
These policies also serve to help the federal government better manage the country’s trade deficit which has been growing at an alarming rate in the past decade. “The annual U.S. trade deficit soared to its fifth consecutive record last year, the Commerce Department announced Tuesday, adding fuel to a movement in Congress to remake U.S. trade policy” (Haveman and Hennessy-Fiske, 2007, p. C. 3).
As the country continue to forge trade agreements with other economies and draft trade policies that impact its economic relationship with other countries, care must be exercised. In the end, I think that all trade agreements must promote the welfare of Americans.
Frum, D. (2004). A deficit America can live with. National Post, October 5, 2004, A. 18.
Haveman, J. ; Hennessy-Fiske, M. (2007). U.S. trade deficit report prompts calls for reforms; The annual figure soars to a fifth consecutive record despite a solid domestic economy. Los Angeles Times, February 14, 2007, C. 3.
Levey, D. H. ; Brown, S. S. (2005). U.S. hegemony has a strong foundation. International Herald Tribune, February 19, 2005, 4.
The Economist (2007). United States: The trade two-step. The Economist, 383 (8523): 47.