7. Foreign Trade

Today, virtually every country in the world is affected by what happens in other countries. Some of these effects are a result of political events, such as the overthrow of one government in favor of another. But a great deal of the interdependence among the nations is economic in nature, based on the production and trading of goods and services.

One of the most rapidly growing and changing sectors of the U.S. economy involves trade with other nations. In recent decades, the level of goods and services imported from other countries by U.S. consumers, businesses, and government agencies has increased dramatically. But so, too, has the level of U.S. goods and services sold as exports to consumers, businesses, and government agencies in other nations. This international trade and the policies that encourage or restrict the growth of imports and exports have wide-ranging effects on the U.S. economy.

As the nation with the world’s largest economy, the United States plays a key role on the international political and economic stages. The United States is also the largest trading nation in the world, exporting and importing more goods and services than any other country. Like almost all of the other nations of the world, the United States has seen a rapid increase in both its imports and exports over the last several decades. In 1959 the combined value of U.S. imports and exports amounted to less than 9 percent of the country’s gross domestic product（GDP）; by 2004 that figure had risen to 25 percent. Clearly, the international trade sector has grown much more rapidly than the overall economy.

Most of this trade occurs between industrialized, developed nations and involves similar kinds of products as both imports and exports. While it is true that the U.S. imports some things that are only found or grown in other parts of the world, most trade involves products that could be made in the United States or any other industrialized market economies. In fact, some products that are now imported, such as clothing and textiles, were once manufactured extensively in the United States. However, economists note that just because things were or could be made in a country does not mean that they should be made there.

Just as individuals can increase their standard of living by specializing in the production of the things they do best, nations also specialize in the products they can make most efficiently. The kinds of goods and services that the United States can produce most competitively for export are determined by its resources. The United States has a great deal of fertile land, is the most technologically advanced nation in the world, and has a highly educated and skilled labor force. That explains why U.S. companies produce and export many agricultural products as well as sophisticated machines, such as commercial jets and medical diagnostic equipment.

Many other nations have lower labor costs than the United States, which allows them to export goods that require a lot of labor, such as shoes, clothing, and textiles. But even in trading with other industrialized countries—whose workers are similarly well educated, trained, and highly paid—the United States finds it advantageous to export some high-tech products or professional services and to import others. For example, the United States both imports and exports commercial airplanes, automobiles, and various kinds of computer products. These trading patterns arise because within these categories of goods, production is further specialized into particular kinds of airplanes, automobiles, and computer products. For example, automobile manufacturers in one nation may focus production primarily on trucks and utility vehicles, while the automobile industries in other countries may focus on sport cars or compact vehicles.

The United States enjoyed a special advantage in the availability of factories, machinery, and other capital goods after World War II ended in 1945. During the following decade or two, many of the other industrial nations were recovering from the devastation of the war. But that situation largely disappeared, and the quality of the U.S. labor force and the level of technological innovation in U.S. industry became more important in determining trade patterns and other characteristics of the U.S. economy. A skilled labor force and the ability of businesses to develop or adapt new technologies are the key to high standards of living in modern global economies, particularly in highly industrialized nations. Workers with low levels of education and training will find it increasingly difficult to earn high wages and salaries in any part of the world, including the United States.