Personal Wealth Management / Economics

Fisher Investments Explains How Trade Affects the US Economy

International trade can bring benefits and hazards for the countries, businesses and individuals affected by it.

This video from Fisher Investments examines how international trade works, as well as how it affects the US economy.

Transcript

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Title screen appears “How Does Trade Affect the US Economy?”

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On the screen a world map is shown with ships moving around the waters from the US and into the US.

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A Female Voice: Everyday, the United States trades with other nations around the world, and while international trade often
generates charged news headlines, it's important to cut through the
clutter and examine what trade
is and its true effects for individuals, businesses, and the entire US economy.

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On the screen a ship appears to be sailing with goods to a US port.

A second ship with a Chinese flag appears to be sailing to the US port too.

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A Female Voice: First of all, let's define trade.

Trade is an exchange of goods and services between countries. Countries trade with one another to help meet their consumption needs and find new markets for their products, one side of the trade equation is imports.

Imports are goods and services brought into a country from abroad. In 2019, the United States brought in about 3.1 trillion dollars' worth of imports.

Everything from electronics and apparel to computer services and medical equipment. About 80 percent of that amount was goods and the remainder was services.

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On the screen a US ship appears to be sailing out from a US port to other countries,

A data grid appears showing details about US exports.

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A Female Voice: The other side of the trade equation is exports, which are goods and services sent to other countries. The United States shipped around 2.5 trillion dollars' worth of exports to other countries in 2019, that includes everything from aircraft and agricultural products, to movies and music. Goods made up around two-thirds of total exports, while the United States trades with countries all around the world, three nations in particular make up the US's top trading partners, according to 2019 data.

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On the screen a big Chinese Hauler appears on the sea with a lot of containers, after it a Mexican Hauler

Appears with a moderate number of containers on it, lastly a Canadian Hauler comes with a small number of containers on it.

In reverse a Canadian ship is seen coming back from a US port with a lot of cargo, indicating high amount of import, next a Mexican ship with a moderate amount of cargo indicating a medium Import ratio, and lastly China with a ship with small amount of cargo indicating small imports from the US.

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A Female Voice: The top importers to the US are, China with about 452 billion dollars' worth of imports to the us, Mexico with over 350 billion dollars' worth of imports, and Canada who sends us around 320 billion dollars' worth of imports to the us, Canada is also the United States biggest export destination, receiving around 292 billion of US goods, Mexico is second at around 256 billion, and China is third receiving around 107 billion dollars of US exports.

A Female Voice: Assessing a country's trade means examining the levels of both imports and exports, that leads to a couple of different ways to stack up those numbers. A common way of measuring trade is the balance of trade, this simple equation subtracts the value of a country's imports from the value of its exports. If the exports are greater than imports the country has a trade surplus.

A Female Voice: Trade surpluses are uncommon for the United States, the last time the US exported more than it imported was 1970. If the value of imports exceeds the value of exports, the country has a trade deficit. According to the Bureau of Economic Analysis, the United States has an overall trade deficit
with the rest of the world. The US
imported about 500 billion more in goods and services than it exported in 2019.


A Female Voice: Trade deficits are commonly thought of as a bad thing.
That's understandable since the balance of trade view treats imports as a negative, however, what's common isn't necessarily what's most accurate. A different way of measuring trade is combining exports and imports to arrive at total trade. The concept of total trade casts both imports and exports as positive economic activities. At Fisher Investments, we view total trade as a more meaningful concept when assessing a country's economic health, rising exports mean US goods are in high demand elsewhere, a rise in imports is a positive signal that US businesses and consumers are willing and able to spend, indicating healthy domestic demand.

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On the screen a world map appears, the countries Canada, US and Mexico are highlighted on the map.

After that, the countries: Morocco, Jordan, Oman, Australia, South Korea and two more Latin American countries are highlighted in the map

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A Female Voice: Trade between two countries can be easier or harder depending on how many restrictions are in place. Free trade is the reduction of economic trade barriers, typically through formal agreements between two or more countries. As of 2020, the United States has 15 free trade agreements with 21 different countries. The US-Mexico-Canada agreement, reduces trade restrictions among those three countries. The United States also participates in the Dominican Republic- Central America free trade agreement with six other nations. Additionally the US maintains separate free trade agreements with a dozen other countries.

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On the screen, a map appears with a country A on the left and country B on the right. A canon on each side of both countries appears pointed at the other, the canons are named Tariff, Quota, and Embargo.

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A Female Voice: Trade can also become aggressive; a country may try to protect certain
domestic industries from foreign competition by restricting
imports in those industries.
When two nations retaliate against each other with escalating trade restrictions; it's often called a “Trade War”. There are a few common weapons in a trade war, tariffs are taxes on imported goods.

A Female Voice: In the United States, tariffs are paid to US Customs by the US registered firm that's importing the goods. Often though, the cost of tariffs is passed along to the consumer through price increases. Another common weapon in a trade war is a quota, which is a physical limit on how much of that particular good can be imported.

 A Female Voice: One of the most extreme trade war weapons is an embargo, this is a partial or complete ban on trading with a country.

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On the screen a container appears with the US constitution emblem on it, after it many emblems appears on the container such as USDA, FDA, SBA, CIA and many more.

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A Female Voice: Who makes decisions regarding international trade? In the United States, the Constitution originally gave Congress ultimate authority to regulate trade with other nations. Over time though, Congress conceded much of that control to other parts of the government, now all three branches of the US government have some influence on regulating trade, but why would economies want to engage in international trade?


A Female Voice: International trade allows an economy to focus on its comparative advantages, that's the ability to produce goods and services of a particular quality
more efficiently than another country. For example, the United States has comparative advantages in diverse products and services, from aircraft and financial instruments to entertainment and sports.

A Female Voice: A country like France has comparative advantages in wine and cheese production. Trading with other countries and focusing on comparative advantages allow economies to do what they do best, become more efficient over time, and give their citizens access to goods and services from abroad.
Two countries that specialize in their relative comparative advantages and trade with each other can both gain from trade. So how has trade affected the US economy?

A Female Voice: According to 2019 research from the Business Roundtable, a US trade industry group, around 39 million US jobs rely on international trade, that's about 20% of total employment, and every US state saw net employment gains from trade with other countries, what about businesses?

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On the screen a factory appears on land

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A Female Voice: International trade can offer businesses access to more customers, lower cost labor, and more resilient supply chains. However, international trade can also open US businesses up to competition from lower cost imports.

A Female Voice: International trade isn't just for big businesses and multinational corporations though.
According to 2018 data from the US Census Bureau, almost 98% of us exporting companies had fewer than 500 employees. Over 97% of importing companies
were small businesses too, and the effect of international trade on individuals? While trade gives consumers vastly more choice,
2017 analysis from the Petersen
Institute for International Economics, suggests that the US sees 100 000 net manufacturing job losses per year, because of international trade. That's about 39% of all manufacturing job losses. However, since World War II, global trade has helped build US household wealth. Since 1945, annual gross domestic product or GDP per US household has increased by over 18 thousand dollars because of international trade, that's according to the Economic Policy Institute who also found that trade can benefit wages. Their research showed that companies that engage in importing or exporting, tend to pay more than companies that weren't involved in international trade.


A Female Voice: Trade is an economic interaction between two countries. It can be seen as either cooperative or
confrontational. When trade is open, consumers and businesses have access to more goods and services than the US economy can provide, often at a lower cost. When trade policy becomes aggressive, consumers often end up paying the price, literally, and while trade dynamics have caused some sectors like manufacturing to shed jobs, the US economy, businesses and individuals have all benefited massively from international trade.


A Female Voice: Thanks for watching.

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On the screen a website appears.

The title is “How does Trade affect the US Economy?”

The site is FisherInvestments.com

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A Female Voice: You can explore more about international trade at our website FisherInvestments.com where you'll find the infographic that inspired this video.

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A white screen appears with a title “Fisher Investments” underneath it is the YouTube’s red Subscribe Button

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A Female Voice: If you enjoyed this video, you can click the subscribe button and ring the bell to be notified when we publish new content.

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The woman finished talking and a series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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