The Ups and Downs of the U.S. Economy
Import and Exports Prices
The U.S. economy is one of the most complex economies in the world today. It is one of – if not the biggest economy that the world has. One of the features of the U.S. economy is one that is considered to be a mixed economy. “Filled with private firms that makes up the microeconomic decisions that is regulated by the government” (Wikipedia, 2008). The American economy is widely affected by the different international trade organizations that the U.S. is a part of, such as the United States Court of International Trade, Canada-United States Free Trade Agreement, United States International Trade Commission, United States free trade agreements, North American Free Trade Agreement, Organization of American States, and Security and Prosperity Partnership of North America.
Even though the U.S. economy is one of the most complex economies out there, there have been times where it has hit rock bottom. The rise and fall of the U.S. economy is studied under a microscope; and the watchful eyes of many in the world note the reasons why U.S. prices rise and the reasons why they fall, as well as the good and the bad things that could come out of those shifts in the U.S. economy and how they affect consumers. This has changed over the years due to the different things that has happened in the world – some controllable and some not so controllable. Situations affect us that we as consumers are not even aware of. As members of this powerful economy, we should be aware of the details of these situations. However, we as the consumers don’t take the time to see what is happening to us, the people that make up the U.S. economy. This gives the government as well as foreign nations the opportunity to take advantage of us and rob us blind.
The Ups and Downs of the U.S. Economy
Import and Exports Prices
Reasons Prices Rise
Trade has always been a big part of the U.S. economy system. Even though this is true, no one really knows what causes it to stay that way. Today is filled with different technologies immerging out of the wood works, with saying this it is very hard to keep up with the changes. A couple of reasons the prices rise in the U.S. economy are the increase as well as the decrease in the port industries, the rise of food and the very familiar rise in fuel.
Gas prices have been on the ups and downs on the price charts for a while now due to the changes in the crude oil prices. Along with the shifts of oil prices – due to quantity and demand – there is the issue of taxes. The U.S. government is aware of the struggle for oil, so in my opinion, the U.S. government takes this opportunity to impose taxes on the price of oil. In doing this, people will purchase it no matter how much it will cost them as consumers. Words from a true consumer, “As a consumer, I can't ignore food and energy,” according to Ken Matheny (2008).
Believe it or not, some of the everyday foods that we consume may be products of trade. With saying this, food has no exception to being targeted in getting bitten by the price bug. Due to the rising cost of food, wholesalers like Sam’s Club and Costco have deeply raised their prices, seeing that there is little or no gap between wholesalers and their trade partners. “However, increases in wholesale prices don't necessarily translate into comparable rises in consumer prices,” according to Los Angeles Times Staff Writers Maura Reynolds and Jerry Hirsch (2008).
“Import prices have risen 14.8 percent over the last 12 months, the largest year-to-year gain… A large factor was petroleum prices, which have risen 60 percent over the past year, although prices for food, feed and beverages have increased 14 percent” (Reuters, 2008). The import/export industries are constantly hit by the rising and falling of price in international trade.
Disadvantages of PricesRising
The U.S. economy is heading into a supposed recession; prices are rising and creating disadvantages in various ways. The uptrend of the price of certain goods and services – gas, transportation and ultimately the price of imports and exports – has created reconsiderations for consumers about their spending habits. The lack of consumer spending and increasing prices of goods is leading to inflation and a weaker American dollar. The larger transportation costs have led to higher costs of international trade participation; this could eventually lead to s smaller consumer surplus and a diminished total surplus.
“Consumer spending accounts for about 60% of the country's $13.2 trillion economy” (Jubak, 2008). That calculates out to be about $8 trillion. Even a minute drop of a single percentage point can equal out to $80 billion in unrealized revenue. As prices rise and the media continues to reverberate cries of recession, many consumers are choosing to save rather than spend out of fear of uncertainty. For an economy built on spending, that can create a bleak outlook. According to Bloomberg (2008), “A slowdown in consumer spending will contribute to a halt in U.S. economic growth in the first half of this year…” The U.S. consumer market makes purchases based on prices; wherever the lowest price can be found that is where U.S. consumers will shop.
“U.S. import prices rose by a more-than-expected 2.8 percent in March as petroleum prices jumped 9.1 percent” (Reuters, 2008). As import prices rise, and consumers spend less and less – dwindling the driving force of the American economy – the value of the U.S. dollar weakens. Inflation becomes an issue as the price of gas and other fuels are now higher. Transportation costs become a bigger issue; the fees associated with conducting international trade become a bigger issue.
As import prices increase, the consumer surplus will decrease according to Gerber’s International Economics. There are larger costs to conducting imports now which discourages importers. Inflation limits the strength of the dollar and makes exports from the U.S. more attractive to foreign importers. Both of these contribute towards a smaller consumer surplus as there are less imported goods and less domestically produced goods.
Looking at these disadvantages (lowered consumer spending, smaller consumer surplus, and inflation), the truth in Nelson’s words can be seen, “…international trade involves both importing and exporting, not one at the exclusion of the other.” The increase in prices is causing an adverse outlook in the eyes of consumers. The companies which import goods have to limit import quantities or increase the price charged to the ultimate customer. “The price of your product should be high enough to generate a suitable profit…” (Nelson, 2000).
The Advantages of Rising Prices in the U.S. Economy
I was skeptical about being able to find anything good about rising prices in the U.S. economy; I felt that there was nothing positive for consumers when prices start going up. However, after much research, we were able to find a few “victories” of the rising cost in the U.S. economy on MSN’s web site MSNBC.com.
The first comes buried in the middle of one of the biggest busts in the housing market. On the other side are falling typical middle class home property values, farmland values in the farm real estate market have taken off. As stated by the U.S. Agriculture Dept., U.S. farmland values have seen positive comps in excess of 190 percent since about 1987. That percentage more accurately translates into figures from an average of 599 dollars per acre to a new average of 1900 dollars per acre. Some attributes to the success for the farmers that own farmland is that interest rates have tended to be low over the years, demand for non-agriculture use, and interest from investors. Land with over 1,000 dollars in annual agriculture are labeled “most expensive” and tend to be located in California, Virginia, Florida, and the Northeast.
In addition, Provision 1031 of the tax code allows sellers to avoid incurring capital gains on property traded for a like investment. Also, rising gas prices are fueling the surge toward development of alternative fuels. This in turn raises demand for land to grow corn, for the research and development of ethanol. This benefits not only farmland markets, but it helps provide a cleaner healthier environment. Another plus is that over time, the prices for fuel will recede and free up more spending dollars for the average middle class American. This in my opinion will more evenly disperse funds in the economy, boosting it substantially, because people will not have to spend so much money on transportation.
This transitions into our second victory also found on MSN.com. As stated above, ballooning fuel prices has sparked an alternative fuel revolution here in the U.S. Drivers are now considering biodiesel powered or hybrid cars for their commuting needs. But not only drivers are looking for change, but the government and airliners are trying to figure out how they can power commercial jet engines alternatively. This in theory would lower the price to fly in the long run, if technological advancements are made. Current alternatives for automobiles are derived from, soybeans, corn, and other products such as synthetics, and hydrogen.
Basically, rising prices cause development of alternatives to things that we have become use to, as illustrated by the two victories found while researching. These changes in my eye are for the good of society because they will provide a cleaner environment. The dependence on goods can be offset by giving consumers more options that require less financial input to acquire. That should in theory free up funds to purchase other things, in turn boosting the economy.
The Ups and Downs of the U.S. Economy
Import and Exports Prices
We can conclude by saying, we better understand how the U.S. economy changes as consumer prices start to rise. We have found facts that tell us, as prices start going up, consumer spending starts to level out. When the price of goods get to high, consumers start finding alternative solutions to fulfill needs and/or wants. This seeking of alternatives then positively shifts the demand of more financial friendly goods. This in turn lowers the price of the once high priced goods because its demand starts shrinking. We believe this process lowers prices in the long run because the market is forced to level out and become more competitive. The economy then becomes more diverse with the surplus of goods, producing happier consumers. So, maybe patience is a necessary trait when dealing with such economic issues.
Gerber, J. (2008). International economics (4th edition). Boston, MA: Pearson Education Inc.
Nelson, C. (2000). Import/export: How to get started in international trade. New York: McGraw-Hill
Reuters. (2008, April 11). Import prices rise more than expected in March. CNBC News, Economy. Retrieved on April 12, 2008, from http://www.cnbc.com/id/24064454
Jubak, J. (2008, April 25). Don't count on a ‘normal’ recession. MSN Money, Investing. Retrieved on April 22, 2008, from http://articles.moneycentral.msn.com/Investing/JubaksJournal/DontCountOnANormalRecession.aspx?page=2
Credeur, M. (2008, April 23). UPS's domestic shipments drop on slowing U.S. economy (Update6). Bloomberg, News. Retrieved on April 24, 2008, from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSdc.GD9sLRc
Bergin, T. (2008, April 26). It Business Net. Retrieved April 26, 2008, from http://www.itbusinessnet.com/articles/viewarticle.jsp?id=368929&afterinter=true
Economy of the United States. (n.d.). Retrieved April 22, 2008, from http://en.wikipedia.org/wiki/Economy_of_the_United_States
Maura Reynolds and Jerry Hirsch. (2008, April 16). Los Angeles Times. Retrieved April 22, 2008, from http://www.latimes.com/business/la-fi-econ16apr16,1,2722577.story
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