15 September 2009
A U.S. Economy Linked to the World
United States shows no sign of retreat from global engagement
This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).
Open trade “dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war.”
Secretary Cordell Hull
U.S. Department of State
1948
Trade ties the United States’ economy inextricably to the markets and economies of the rest of the world. In 2007, the U.S. gross domestic product—the output of U.S.-based workers and property—totaled nearly $14 trillion. One out of every eight dollars, or $1.6 trillion, came from exports to foreign destinations. Imports into the United States were significantly higher, totaling $2.3 trillion.
In addition to traded goods and services, huge tides of financial transactions flow across global borders. U.S. companies and individuals directly invest more than $2 trillion abroad annually, making the United States the world’s largest direct investor in foreign economies. It also receives more investment from outside its borders than any other nation. As a world financial capital, New York is the center of an international hedge fund industry of private investors that amassed nearly $1.5 trillion in assets at the end of 2006.
While U.S. exports add to the nation’s gross domestic product, the larger volume of imports reduces it. The trade imbalance over the past decade has created a politically sensitive tradeoff: The surplus of imports tended to lower prices paid by American consumers, but it also depressed wages for some workers in industries facing foreign competition. The U.S. trade deficits have also undermined the value of the U.S. dollar compared to other major currencies, increasing concerns about the stability of the world’s financial markets, as described in chapter 8.
What does the United States export? The largest single category in 2006 was motor vehicles and their parts and engines, totaling $107 billion. Semiconductors ($52 billion), civilian aircraft ($41 billion), computer accessories ($36 billion), pharmaceuticals ($31 billion), telecommunications equipment ($28 billion), chemicals ($27 billion), plastic materials ($25 billion), and medicinal equipment ($22 billion) followed on the list of major export industry categories.
U.S. oil and gas imports totaled $330 billion in 2006. Americans imported $257 billion worth of motor vehicles, engines, and parts that year, along with $100 billion in computers and computer accessories, $91 billion in various kinds of apparel and textiles, $64 billion in pharmaceuticals, $36 billion in televisions and VCRs, and $29 billion worth of toys and games. The variety of traded items spans virtually everything Americans make, wear, use, or consume.
The United States is the world’s largest agricultural exporter, with one out of every three acres planted for export, according to U.S. government surveys. The value of U.S. exports of farm products, animal feeds, and beverages came to $66 billion in 2006. Imports were higher, at $74 billion. The total volume of U.S. farm exports rose by 17 percent between 1997 and 2007, and in that period, American farmers exported 45 percent of their wheat, 33 percent of their soybean production, and 60 percent of their sunflower oil crops.
As economist Paul M. Romer has observed, imports rose from 12 percent of the U.S. gross domestic product in 1995 to about 17 percent a decade later. Foreign money provides about one-third of U.S. domestic investment, up from 7 percent in 1995. In other words, Romer says, “The U.S. is more open to the global economy than ever before, and the links run in both directions.”
A commitment to expand global trade has been a cornerstone of U.S. policy since the final years of World War II, when the United States and other victorious nations adopted a series of international compacts to promote economic stability and growth. Trade restrictions and currency devaluations were widely considered to have worsened the 1930s Great Depression by stifling international commerce.
Through the formation of the United Nations and the agreements on international economic policies reached at the 1944 Bretton Woods Conference in the United States, the allied powers hoped to replace the militant nationalism that led to the war with cooperative economic policies. During the Cold War between the Soviet bloc and the West, trade liberalization with Europe and Asia became an instrument of U.S. foreign policy and a way to promote market capitalism in emerging nation economies.
