Question

what is the effect of the growth of U.S imports on current economic conditions?

Answer 1

Imports and Impact on the Economy

If a country imports more than it exports it runs a trade deficit. If it imports less than it exports, that creates a trade surplus. When a country has a trade deficit, it must borrow from other countries to pay for the extra imports. It's like a household that's just starting out. The couple must borrow to pay for a car, house, and furniture. Their income isn't enough to cover the necessary expenses that improve their standard of living.

But, like the young couple, a country should not continue to borrow to finance its trade deficit. At some point, a mature economy should become a net exporter. At that point, a trade surplus is healthier than a deficit.

Why? First, exports boost economic output, as measured by gross domestic product. They create jobs and increase wages.

Second, imports make a country dependent on other countries' political and economic power. That's especially true if it imports commodities, such as food, oil, and industrial materials. It's dangerous if it relies on a foreign power to keep its population fed and its factories humming. For example, the United States suffered a recession when OPEC embargoed its oil exports.

Third, countries with high import levels must increase their foreign currency reserves. That's how they pay for the imports. That can affect the domestic currency value, inflation, and interest rates.

Fourth, domestic companies must compete with the imports. Small businesses that can't compete will fail. Since they create 70 percent of all new jobs, that will affect employment.

And finally, exports help domestic companies gain a competitive advantage. Through exporting, they learn to produce a variety of globally-demanded goods and services.

Although most economic models point to overall gains from trade, these gains are not distributed evenly across workers and regions. With that in mind, Lorenzo Caliendo, Fernando Parro and I studied the impact of the surge of imports from China between 2000 and 2007 on different U.S. labor markets. In particular, we examined how workers in different sectors, like manufacturing or services, and in different regions were affected.

Of the more than 3 million manufacturing jobs that were lost overall in the U.S. between 2000 and 2007, we found that about 800,000 manufacturing jobs were lost because of the increased Chinese competition. Most of these jobs were in the production of computer and electronic goods, primary and fabricated metal products, furniture and textiles.

As might be expected, larger states experienced larger losses in manufacturing jobs. After controlling for size, we found that states with a larger share of manufacturing employment (e.g., Ohio) experienced a larger than average loss, while the opposite was true for states with a smaller share of manufacturing employment (e.g., Florida).

Despite the job losses in manufacturing, the economy gained a similar number of jobs in other sectors, such as services, construction, and wholesale and retail trade. These sectors, which were not very exposed to Chinese competition, benefited from having access to cheaper intermediate inputs. As a result, U.S. firms in these sectors were able to lower their production costs. In turn, consumers were able to purchase these U.S. goods at a lower price. Between these savings and the savings on cheaper Chinese-made goods that they bought, U.S. consumers gained an average of $260 of extra spending per year for the rest of their lives, we estimated, all stemming from the increased imports from China.