International Trade: US Trade Partners

Who Does the United States Trade With The United States traded with over 160 nations in 1988; however, there are a few nations that have emerged as our dominant trading partners. The table showing U.S. exports in Box 3 reveals that 10 nations accounted for two thirds of all purchases of U.S. exports. Our biggest export customer was Canada which bought 22 percent of the total value of all exports in 1988. The second largest buyer was Japan, which purchased 11.7 percent of the total value in 1988. Box 3 also shows the top 10 nations that account for nearly three fourths of our imports. Not surprisingly, the number one supplier is Japan. One out of every five dollars spent for American imports ended up in the hands of Japanese businesses in 1988. However, Canada runs a close second to Japan, accounting for 18.5 percent of the total in 1988. Canada and Japan can be ranked as the top two U.S. trading partners both for exports and imports. The other major trading partners are Mexico, Taiwan, Hong Kong, South Korea, France, Germany, the Netherlands, and the United Kingdom. In the 1980s, newly industrialized nations in East Asia, including Hong Kong, Singapore, South Korea, and Taiwan have become increasingly more important trading partners. Together, these Pacific Rim nations purchased 11 percent of U.S. merchandise exports and supplied 14 percent of our imports in 1988. The Basis For International Trade A basis for trading with other nations exists for the purpose of obtaining goods that are unavailable or too costly to produce domestically. Another basis for international trade lies in the fact that human, as well as natural, resources vary among nations. For example, the Swiss are noted for their traditional skills in watch-making and producing fine chocolate candies. The Italians have long been known for the high quality of their leather goods. The United States is well endowed with timber and coal. Early in the book we discussed the advantages of specialization and the division of labor. Specialization is the use of labor and other resources in a nation to produce the goods and services for which these resources are best suited. Many Japanese workers specialize in the production of automobiles and electronic goods, while in the United States there are many factories whose employees excel in the production of aircraft. The larger output possible from specialization often results in economies of scale that lower production costs still further. The basis for international trade is firmly rooted in the gains that are possible from specialization as well as the gains that can be obtained from acquiring natural resources that are unavailable locally. When nations specialize in the production of certain items, output of those items in domestic markets exceeds the amounts demanded at current prices. The firms can then sell the surplus goods in foreign markets. The foreign currency obtained from these export sales can be used to buy the products of other nations. For example, Italy specializes in the production of wine. By doing so, it can gain foreign currency to purchase petroleum products, which it requires as an input in production but lacks in sufficient quantities as a domestically produced resource. Similarly, the United States specializes in the production of wheat, which it then exports to Italy in exchange for Italian lie that can be used to purchase Italian wines. China and the Soviet Union have recently sought to encourage tourism as a means of earning foreign currency to purchase goods offered for sale by Western nations. We Americans are fortunate in that we live in a nation that is well endowed with both natural resources and a skilled labor force. Our country's vast and diverse productive capacity means we are less dependent on international trade than are other countries for such basic resources as fuel, food, and fiber. Other nations, like Japan and Israel, rely heavily on imports for basic natural resources. Such nations are under pressure to export goods and services to earn the foreign exchange necessary to finance their imports. International trade is often opposed by groups that seek to insulate themselves from what they regard as unfair foreign competition. Many people argue that foreign competition is unfair because cheap foreign goods are produced with cheap labor and are heavily subsidized by foreign governments that are under pressure to earn dollars from international trade. Although there are long-run mutual gains from trade, in the short run it's clear that particular groups, such as workers with specialized skills or owners of specialized equipment, can be harmed by increased imports.