How Trade Affect the Economy

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Destiney Clay Mr. Gillispie Economics 8th block September 14, 2010 How the International trade impacts the US economy? Foreign trade has become more important to our economy in recent years. Only five percent of the world consumers live in the U. S. Therefore, if the U. S. only trade domestically, it will only have small share of potential customers in the world. International trade help diversify U. S. domestic economy. It helps the overall economy of the U. S. grow stronger. International trading also help small companies grow and become more competitive in the world market. The study shows that international trade help the small business’s growth. Over two-thirds of exporters firms have over twenty employees. The majority of small and medium-sized international trading firms  only sell to one foreign market. If they can easily boost up their sales by increasing the number of countries they sell to. They are important because, the small and medium sized international trading firms made up almost ninety seven percent of U. S. exporters. But they only represent thirty percent of export value of U. S. products. They have strong potential in expanding. The statistics show that the United State exports has increased from 224 billion to $1. 1 trillion in the past twenty five years. Small and medium size international trading firms create new jobs in the United State. An important policy tool that can assist Congress in assessing the value and the impact of trade agreements is represented by sophisticated models of the economy that are capable of simulating changes in economic conditions. These models are particularly helpful in estimating the effects of trade, in such sectors as agriculture and manufacturing where the barriers to trade are identifiable and subject to some quantifiable estimation. Barriers to trade in services, however, are proving to be more difficult to identify and, therefore, to quantify in an economic model. In addition, the models are highly sensitive to the assumptions that are used to establish the parameters of the model and they are hampered by a serious lack of comprehensive data in the services sector. Nevertheless, the models do provide insight into the magnitude of the economic effects that may occur across economic sectors as a result of trade liberalization. These insights are especially helpful in identifying sectors expected to experience the greatest adjustment costs and, therefore, where opposition to trade agreements is likely to occur. This report examines the major features of economic models being used to estimate the effects of trade agreements. It assesses the strengths and weaknesses of the models as an aid in helping Congress evaluate the economic impact of trade agreements on the U.

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