Trade and Macroeconomics in the United States
Last week, during the June meeting of the Federal Open Market Committee (FOMC), the Federal Reserve decided to raise the target of the Federal Funds (interest) rate to a range between 1.0% and 1.25%. This decision was both welcome and expected. First of all, because interest rates in the United States, and throughout the world, have been relatively stagnant since the 2008 financial crisis, which hurts savers and drives investors away from traditional instruments, such as government-issued bonds. Seeing that the national economy is moving forward positively, the FOMC decided that it could afford to increase the interest rate to its highest levels in several years, which will lead to more saving, without sacrificing the rising levels of consumer spending or business investment. Likewise, other key figures that give optimism to the decision-makers at the Federal Reserve include an increase in US exports this year and the low unemployment of 4.3% recorded in May. On the other hand, inflation indicators, both core and overall inflation, have been consistently lower than the stated target of the Federal Reserve, which is 2.0%. Inflation levels in the United States have been low throughout the last years given the low prices that are dominating the energy and fossil fuels sector as well as the increasing accessibility of technology and affordability of telecommunication services.
The fact is that the national economy has been behaving and responding positively to developments throughout recent months in spite of a certain degree of global uncertainty and instability. Following last week’s increase in interest rates by the Federal Reserve, this week the Dow Jones industrial average hit record levels once again when it surpassed 21.500 basis points. Furthermore, estimates by the Federal Reserve expect real GDP growth to stabilize around 2.0% during the next few years. Similarly, the FOMC expects that they will be able to continue their gradual increase of the Federal Funds (interest) rate until reaching the long-run target of 3.0% in 2019. This article explores the status of trade in the United States.
Trade and Macroeconomics in the United States
The United States is the world’s second largest export economy, after the People’s Republic of China. During 2015, the country exported US$1.38 trillion worth of goods and imported US$2.16 trillion, leading to an overall trade deficit of US$777 billion. That same year, machinery, such as gas turbines, integrated circuits, and valves, represented 25% or US$349 billion of the United States’ total exports. Likewise, the transportation industry, namely cars, planes, and tractors, made up 16% or US$219 billion of the country’s exports during 2015. Meanwhile chemical products, such as medicine, beauty products, and fertilizers, represented the United States’ third largest export category, at 13% or US$185 billion. Finally, the majority of United States’ exports in 2015 were destined for Canada, which purchased 16% or US$219 billion of the country’s international sales, followed by Mexico at 14% or US$188 billion. As a whole, Europe purchased 24% or US$325 billion of United States’ exports in 2015, while China purchased another 9.3% or US$129 billion.