General Pattern of Trade of US and Brazil over the Past 50 Years - Coursework Example

General Pattern of Trade of US and Brazil over the Past 50 Years Student’s Name Institution Affiliation General Pattern of Trade of US and Brazil over the Past 50 Years This paper analyses trade activities of the United States, a developed country according to Central Intelligence Agency (CIA), as well as Brazil a developing country over the past 50 years. Of interest is each country’s dependency on international trade and reasons for the trend inferred. The paper also explores each country’s post Global Financial Crisis years seeking to find what each country’s response has been to the world economic crisis. Lastly, the paper gives an opinion of each country’s future economic prospect based on each country’s approach to international trade at the present. According to the CIA, Brazil has been classified as a developing country while it classifies the United States as a developed country (2014). Brazil’s Trade Statics to infer its pattern of trade for the past 50 years (OECD iLibrary, 2013). Demonstration Brazil’s Trade Statistics Trade                   ‌ Imports of goods and services % of GDP ..   ..   ..   ..   ..   ..   ..   ..   ‌ Exports of goods and services % of GDP ..   ..   ..   ..   ..   ..   ..   ..   ‌ Goods trade balance: exports minus imports of goods Bln USD 44.9   46.5   40.0   24.7   25.3   16.9   29.8   ..   ‌ Imports of goods Bln USD 73.6   91.3   120.6   173.2   127.6   180.5   226.2   ..   ‌ Exports of goods Bln USD 118.5   137.8   160.6   197.9   153.0   197.4   256.0   ..   ‌ Service trade balance: exports minus imports of services Bln USD -8.3   -9.6   -13.2   -16.7   -19.2   -30.8   -38.0   ..   ‌ Imports of services Bln USD 24.4   29.1   37.2   47.1   47.0   62.4   76.2   ..   ‌ Exports of services Bln USD 16.0   19.5   24.0   30.5   27.7   31.6   38.2   ..   ‌ Current account balance of payments % of GDP 1.6   1.2   0.2   -1.7   -1.4   -2.2   -2.1 Describe According to the above statistics, Brazil has a positive goods trade balance over the years. This shows that Brazil’s exports of goods exceed imports of goods. Brazil also exhibits a negative service trade balance over the years. This shows that Brazil’s imports of services exceed exports of services. Brazil also exhibits a negative current account balance over the years. United States Trade Statistics ( OECD iLibrary, 2013) Description From the above trade statistics, the United States has a three figure good’s trade balance, which has been negative over the years. This shows that imports of goods exceed the exports. American also exhibits a three-figure service trade balance, which is positive over the years. This implies that exports of services exceed the imports over the years. Overall, the country exhibits a negative current account balance of payment over the years. Comparison Both countries exhibit a negative current account balance over the years. Consequently, this implies that their imports of goods and services exceed their exports. In addition, both countries exhibit a negative one-figure current account balance of payment. Contrast Brazil has a good’s trade balance, which is positive while the United States has a good’s trade balance, which is negative. This implies that in Brazil, exports of goods exceed the imports of goods while in United States imports of goods exceed imports of goods. In Brazil, the service trade balance is negative while in the United States the service trade balance is positive. This implies that in Brazil the imports of services exceed their exports while in the United States the exports of services exceed their imports. Brazil has a two figure good’s trade balance. Conversely, the United States have a three figure good’s trade balance. Brazil has a two-figure service trade balance. Conversely, United States has a three-figure service trade balance. International trade is the trading of goods and services between citizens and noncitizens. Its importance cannot be underestimated given the fact that the country can acquire what it does not produce and sell what it produces in surplus. A country engaging in international trade can create employment opportunities among other advantages of engaging in international trade. From the trade statistics, it is clear that Brazil has become dependent on International trade over the years. Conversely, the United States have become less dependent on International trade over the years. Brazil has achieved an absolute advantage in the production of key goods and services compared to the United States. Absolute advantage is the production of goods and services with the most economical use of resources than other countries of the world (Ranzau, 2009). In this context, Brazil has had an absolute advantage in the production of a good such as sugar. Brazil boasts of large plantations of sugarcane and abundant cheap labor. Therefore, it has an absolute advantage in the production of sugar than other countries. Brazil has a positive dependency on international trade to export the surplus products. On the other hand, the United States who would boast of an absolute advantage in the production of goods and services such as chips has experienced competition mainly from Pacific Rim countries such as South Korea. Consequently, its dependence on International trade to gain revenue has dwindled over the years with countries preferring to trade with South Korea for the chips. Therefore, even if countries have increasingly embraced free trade, reliance of United States on international trade to export such products has decreased over the years. Brazil has also achieved national competitiveness over the years compared to the United States in key goods and services that fetch large amounts of revenue when a country trades internationally in them. It is the ability of a country to innovate and improve in a given industry (Ranzau, 2009). Over the years, Brazil has been able to innovate and improve in industries in which it is endowed with resources. The innovations could be attributed to a highly creative work force and a favorable environment. The government, for example, has offered monetary incentives to firms besides other incentives that have lowered the cost of research and design for the firms. Consequently, firms have come up with better production processes, which have given Brazil national competitiveness in production of goods and services. Brazil, from this national competitive advantage has increased its dependency on international trade over the years. For instance, it can sell its goods and services to other countries at very low prices yet making profits. Therefore, it has increased volumes of goods and services it trades with other nations to boost its economy. Another factor that could be attributed to Brazil’s increased dependency on international trade is the factor productions theory. A country exports goods that it is naturally endowed with the resources and imports goods of which it is less naturally endowed with resources. Factor productions theory focuses on the availability of cheap and abundant goods (Ranzau, 2009). Nations have embraced free trade eliminating barriers to trade through practices such as the imposition of tariffs and local area requirement. In this context, Brazil could have increased production of goods that it is naturally endowed with resources necessary for the production. On the other hand, it could have relied on the importation of key goods that it is less naturally endowed with resources for their production. It has lead to the increase of Brazil’s dependency on international trade. Brazil, for example, is endowed with the resources for the production of sugar and coffee. It has large sugarcane and coffee plantations and applies appropriate technology. Therefore, Brazil can produce sugar and coffee products at a relatively low price than other country’s making it attractive for other countries to imports sugar and coffee from Brazil. Conversely, Brazil is less endowed with resources for production of electrical products such as semiconductors and chips. Therefore, it could opt to use some of its revenues from its exports to finance the importation of semi conductors and chips. Consequently, such a move to export what it produces in abundant and import what it does not produce in abundant could have seen Brazil dependency on international trade increase over the years. Another factor is the formation of trade allies with other countries. Over the years, Brazil has embraced an open economy approach. That is, not restricting imports of goods and services and facilitating exports of goods and services. The formation of allies has seen other countries reciprocate the good move and open their economies to Brazil allowing their imports. It has led to increased dependency of Brazil on international trade. Brazil, for example, through such allies has been able to identify countries, which produce cheap and abundant goods, and services, which they require. Brazil has gone ahead to form trade unions with such countries to ensure they obtain such goods even at more subsidized prices. In contrast, United States has created fewer allies. Consequently, this has had an effect of Brazil growing reliance on international trade while the latter has experienced reduced dependency on international trade. Another factor that has led to Brazil’s dependency on international trade is the low degree of economic independency compared to the United States. Degree of independency is the ability of a country to produce goods and services to meet the consumption needs of its citizens (Chand, n.d.). Brazil is less economically independent. It could be attributed to the fact that it specializes in the production of agricultural products and fewer specialization in other sectors. Brazil, for example, imports 40% of goods and services to meet its total requirement. On the other hand, the United States only imports a mere 2% of goods and services to meet its total requirement. Consequently, due to this low economic independence of Brazil, its reliance on international trade has increased over the years. Another factor is the involvement of Brazil in large-scale production of goods. For example, Brazil boasts of large plantations of coffee and sugarcane. Large scale production brings about economies of scale which are unit reductions associated with the large volume of output (Chand, n.d.). Consequently, large-scale production coupled with economies of scale enable a country to produce a large volume of output at low costs. The production of large volume of output at low prices has seen Brazil accumulate surpluses over the years. Consequently, Brazil has engaged in exports to sell the surpluses. Notably, due to the high demand of these products and Brazil’s low prices attracts many countries to trade with Brazil leading to increased dependency on international trade by Brazil. Another factor that has led to Brazil’s dependency on foreign trade is the fluctuations in prices of agricultural products in the world market of which Brazil specialize in. Agricultural and mineral products that Brazil is naturally endowed with, having fetched very low prices over the years. Brazil uses revenue from these exports in its economy. It requires acquiring of very expensive capital goods required in the production of such products. Therefore, due to Brazil’s inability to buy these capital goods has seen Brazil opt to depend on International trade for the imports of goods and services to meet requirements of its citizens. Fluctuations in exchange rates have also made Brazil dependant on international trade compared to United States. Brazil’s currency has lost value over the years compared to the US dollar. Therefore, its exports are not valuable enough to finance purchase of capital goods and services for the production of goods and services. Consequently, Brazil has to depend on the importation of finished goods from other countries, which have increased its dependency on foreign trade. Political stability has also led to Brazil’s growing dependency on foreign trade. It could be attributed to a corrupt electoral processes and bad ways of settling electoral leaders by their leaders. Political instability disrupts business, which increases the cost of doing business and scares potential investors. In the end, it increases dependency of Brazil on imported goods compared to a rather peaceful United States. The country will suffer shortages of products if there is no peaceful environment in place and thus has to import to meet the needs of its citizens. In summary, Brazil boasts of some positive factors that have made it positively depend on international trade through exports. In contrast, Brazil has also a couple of features that have made it negatively depend on international trade through import of goods and services. Post Global Financial Crises Years of Brazil and US Global financial crises are an economic crisis estimated to arise around the mid of year 2007 that affected world economists. It was estimated to turn on conditions close to those of the Great Depression of the 1930’s, but this was not the case since economies mildly embraced protectionism unlike the 1930’s. Since the beginning of this decade, Brazil has posted an impressive economic performance with the increase in global demand for its commodities and increase in external credit. Notably, it has increased global market for its agricultural, mining, and service sectors. The global economic crises hit Brazil in 2008 where it experienced recession in its economy. The world market for its commodities declined and its external credit. However, the economy was able to revive itself to normalcy by year 2010. Consumer demand for products increased and it was able to lure investors. In addition, Brazil’s economy was able to hit an all high GDP of 7.5% (Davies, 2014). However, this did not augur very well for the Brazilian economy since it triggered inflation. Authorities had to use monetary and fiscal policies to stabilize it. After the GFC, the country has also experienced an increase in the capital inflows given its high interest rates. Nonetheless, authorities have put measures to control the capital inflows. On the other hand, the United States was not spared and has its own share of problems as a result of the mid 2007 GFC. It led to a loss of investor’s confidence in the United States market leading to a liquidity crisis. That is, borrowers were unable to pay their loans. Consumer demand for goods and services also dwindled with consumers experiencing a decrease in their disposable income. The US Federal bank intervened through monetary policies by increasing the money supply into the financial markets (Davies, 2014). By 2008, the stock markets were very unreliable. Investors were less willing to trade in the anticipation of losses. The real estate market suffered greatly out of the GFC with borrowers’ inability to pay their mortgages. It forced banks and other financial institutions that had led these borrowers to pay their loans through acquiring the houses specified as collateral (Davies, 2014). It had the effect of banks acquiring such houses at a value less than their actual loans to the defaulters. Through the US Federal bank and fiscal authorities, they have managed to stabilize the economy. Due to the GFC, Brazil and the United States have become “gated” (“The Gated Globe,” 2013). These economies have become gated through several ways. One of the ways, which the countries have become gated is through mild protectionism. Notably, The World Trade Organization (WTO) has been set up to discourage such protectionism. Unfortunately, countries can devise ways around this watchdog. Both countries are increasingly offering incentives to domestic firms. Other impediments are through health and safety requirements on products and local area requirement. It could discourage potential investors from setting firms in such countries. In addition, Brazil and the US governments have intervened through industrial policy and offering incentives to domestic firms (“The Gated Globe,” 2013). The former is widely acknowledged to restrictive practices such the imposition of tariffs and quotas. However, they serve to give domestic firms a competitive advantage over foreign firms. Consequently, this could raise costs for local consumers and hinder efficient foreign firms from venturing in these countries. Another way through which Brazil and the US have become more gated is through selective choosing of trade partners (“The Gated Globe,” 2013). It could be a move to offset the mild protectionism move by both countries. Both countries have entered into regional free trade countries with other countries of their choice (“The Gated Globe,” 2013). Through such a move, countries in the trade agreement are able to overcome their political barriers and engage in meaningful international trade. For example, The Trans-Pacific Partnership that America is a member will have rules on intellectual properties and investments among other rules to facilitate trade among countries. Another way through which the economies of Brazil and the United States have become gated is through restriction granted to foreign investors and banks (“The Gated Globe,” 2013). Brazil in particular has made it hard for foreign investors to acquire licenses to do business. It has also imposed unrealistic health and safety standards not to mention the local area requirement. Consequently, Brazil’s economy has dwindled and its opening now opening up its economy. Lastly, Brazil and United States have been particular on capital from foreign investors. Brazil, for example, has been restricting efficient foreign investors willing to invest in agricultural and mining sectors (“The Gated Globe,” 2013). It could be an attempt to protect local investors. However, the selection on capital funds to be invested discourages competition from efficient foreign investors. It could serve to increase productivity of local firms to match their counterparts that has a positive effect of increasing production of goods and services. Comparison of Brazil’s and America’s Response Both countries are largely gated. That is, they impose high tariffs on imported goods. Brazil, for example, imposes even higher tariffs compared to the United States while the latter also imposes high tariffs on imports from China. These high tariffs have a negative impact through reducing the amount of products traded for social welfare. For example, Brazil’s exports account for only 12.5% of its GDP. It is rather a small percentage and Brazil would export more if only it embraced a free trade approach. It would serve to attract investors into the country growing production of production and more countries would be willing to trade with Brazil. Contrast of Brazil’s and America’s Response Brazil has maintained a mild protectionism approach while United States over the years after the Global Financial Crises has attempted to open its economy (Lin, n.d.). It could be largely attributed to initiating and overseeing the Trans-Pacific Partnership (TPP). The formation of a trade regional union will see an increase in its international trade once it is finalized. United States have also reduced restrictions on foreign capital (Lin, n.d.). This move could attract more foreign investors increasing productivity. Consequently, it could have a positive spillover effect on the United States economy. Conclusion In essence, the United States has a better economic prospect in the near future unlike Brazil. The reason behind this is that the U.S has embraced an open economy approach of international trade. That is, elimination of trade restrictions such as tariffs and quotas. In contrast, Brazil has embraced a protectionism approach towards international trade. Therefore, America could prosper economically in the foreseeable future compared to Brazil. References Chand. (n.d.). Six Reason for the Rise of Foreign Trade. Retrieved from http://www.yourarticlelibrary.com/foreign-trade/6-reason-for-the-rise-of-foreign-trade-491-words/5952/ OECD iLibrary. (2013). Country statistical profile: Brazil - Country statistical profiles: Key tables from OECD. Retrieved from http://www.oecd-ilibrary.org/economics/country-statistical-profile-brazil_csp-bra-table-en OECD iLibrary. (2013). Country statistical profile: United States - Country statistical profiles: Key tables from OECD - Retrieved from http://www.oecd-ilibrary.org/economics/country-statistical-profile-united-states_20752288-table-usa Davies, J. (2014). Global Financial Crisis - What caused it and how the world responded | Canstar. Retrieved from http://www.canstar.com.au/home-loans/global-financial-crisis/ Lin, J. (n.d.). Policy Responses to the Global Economic Crisis | World Bank Institute (WBI). Retrieved from http://wbi.worldbank.org/wbi/devoutreach/article/262/policy-responses-global-economic-crisis Ranzau, S. (2009). Five Theories of International Trade - Yahoo Voices - voices. Retrieved from http://voices.yahoo.com/five-theories-international-trade-2942515.html?cat=3 The gated globe. (2013). Retrieved from http://www.kingfisher.com/index.asp?pageid=17  Read More