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Trade Deficit Causes, Benefits and Costs

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What have been some major causes of the large U.S. trade deficits since 1992? What is a major benefit (you could address that issue) or a major cost (or, you could address that issue) associated with trade deficits?

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There are several major causes of the large U.S. trade deficits since 1992. One of them is the North America Free Trade Agreement, which made it easier for companies to trade products between countries. Other causes are low wages overseas, lack of manufacturing and safety standards overseas, high wages in U.S, high ...

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Some causes of the U.S. Trade deficits are discussed.

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Week 4: Discussion Questions
1. How do changes in interest rates, inflation, productivity, and income affect exchange rates?
2. Is a strong U.S. dollar always good for the U.S. economy? Why or why not?
3. What parties benefit from the imposition of tariffs and quotas? What parties lose from the imposition of tariffs and quotas?
4. What are the positives and negatives of protectionist trade policies on the part of the federal government? Which policy do you think is best right now?
5. What is the impact of a trade surplus on the exchange rate value of the dollar? Explain.
6. What is the impact of a trade deficit on the exchange rate value of the dollar? Explain.
7. How is international trade related to the standard of living of the United States as
opposed to a small industrial nation or of a developing nation? Note: Be sure to include
in your treatment the impact of the aggregate price level.
8. How might trade agreements have a positive or negative impact on your firm? If your firm or organization is not impacted, do not answer this question.
9. In the 1990s, Japan's economic recession was much in the news. What would you suspect was happening to its trade balance during this time? What policies would you guess other countries (such as those in the Group of Eight) were pressuring Japan to implement?
10. One of the basic laws of economics is the law of one price. It says that given
certain assumptions one would expect that if free trade is allowed, the prices of
goods in multiple countries should converge. This law underlies purchasing
power parity.
Can you list what three of those assumptions likely are?
b. Should the law of one price hold for labor also? Why or why not?
c. Should it hold for capital more so or less so than for labor? Why or why not?
11. A country eliminates all tariffs. Would you expect that the value of its currency to rise or fall? Explain your answer.

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