Question

what effect does the growth of import have on the United states economy?

Answer 1

What effect does the growth of import have on the United States economy?

The growth of import will affect the whole economy of United States significantly. It will have its impact on other sectors of the economy in various ways. When United States will experience a rise in import from other economy then the economy will experience inter-sectoral effects. A rise in import can distort the balance of trade (difference between the value of a country’s export and import in a given financial year) and the United States may face the depreciation of its currency vis-a-vis the economy from which it imports. The appreciation and depreciation of a nation’s currency shows the international trade position of an economy in the international market. The appreciation of currency makes the domestic goods cheaper while depreciation of the currency would make the domestic product expensive. Eventually, it would result in trade deficit in United States.

When United States will import more from other countries then it has to pay the international tariff that imposes by the exporting nations. Because of paying tariff, the price of imported goods would rise. In the recent times, there has been trade war is going on between USA and China in terms of imposing more tariff on certain products by both the nations. Because of this, both countries has raised their respective tariffs rate that results in rise in price of imported goods. The growth of import will also create inflationary situation in the economy, as the price of the imported commodities would rise. This may affect the interest rate in the economy. A rise in price leads to rise in demand for more money that might lead to rise in the interest rate in the economy.

In the national income equations as Y=C+I+G+(X-M), the role of import is important to assess the GDP of an economy. A rise in import will affect negatively to the GDP of United States. Therefore, when there occurs a slight inequality between export and import will affect the GDP of any economy. A rise in export would lead to rise in GDP while a rise in import will reduce the GDP. Therefore, the growth of import will have several negative impacts on the economy. To tackle the issue, the rise in import should have to match the rise in export. It is like maintaining a balance on Razor edge. A divergence from the path of inequality between the two could affect negatively to the economy.