In order to ensure the stability of economic growth of any country, one must strictly monitor the trade balance condition of their economy. Trading between countries is inevitable for it is necessary to achieve impressive not only economic growth but also provide sustainable development on the domestic market of the concerned country. As for the case of United States, one of the major goods that we import from other country would be oil which is a very important factor of production in the market.
At present, the federal government is facing trade balance deficit due to the rising prices of crude oil in the world market, see Appendix 1 (Andrews 1). The question that some of us might want to ask would be: what is the relationship of crude oil on the world market to the stability of our economy? Well, this question can be answered through understanding the logic behind the role of trade balance to our GDP – one of economic indicators (Investopedia. com 1).
Trade balance can be computed through finding the difference between the total exports and total imports of our country. We can only have positive trade balance if and only if the total exports have increased or total imports have decreased. Now, trade balance is directly proportional to the GDP of our country together with our total domestic consumption, Income as well as Government Spending. Therefore, the higher the value of our exports, the higher would be our GDP. But what is happening now in our economy is the other way around.
We have higher value for imports, not because we import much, but because the price of imported goods in the international market has increased, e. g. crude oil. In this regard, the high price of crude oil in world market negatively affects our GDP through lowering down the value to our trade balance (“US Trade Gap Widens as Oil Soars” 1). It was identified that the high prices of petroleum products in the world market increased our trade balance deficit by around 30 percent, see Appendix 2.
Although trade deficits to China has declined due to the improvement on the volume of our exports to the former which hit an all-time high of nearly 5. 5 billion USD, still, the trade balance deficit of the federal government remains high and will continue to increase if prices of petroleum products in the world market will also continue to raise. The said increase on the prices of petroleum products made federal officials to lose hope of experiencing trade balance improvement for the rest of the year.
Moreover, some economists have said that the identified increase of prices of petroleum products in the world market might reduce the first quarter growth of the economy into half due to the negative effects of the said increase of petroleum product’s prices to trade balance. Although the weakening of our trade balance did not hinder other foreign investors to invest to our country as the federal government make necessary negotiations on foreign investors. On the other hand, some members of the federal government, especially law markers regarding the granting of control to five U.
S. cities to Dubai Ports World due to possible security threat. The reason why the federal government is very much aggressive to attract more foreign investors is in order for them to be able to collect more taxes out of the foreign investors that will boost our national income as well as the consumption level of the consumers giving way for the negative effects of trade balance deficit on GDP to be off set by the said improvements on income and consumption level.
The federal government must also become more vigilant regarding its trade relations to other countries in order to prevent exploitation of market influences like for the case of China which allegedly keeps their currency in order to put pressure against the dollar to make their exports cheaper.Sample Essay of UkEssays