In this module, we have learned that the trade balance, interest rates, and exchange rates are all related in an economic and fiscal policy. For decades, the United States and China have traded products through imports and exports, and for the most part, China is able to produce items at a lesser cost than the United States. Americans love a good value, but they also want quality. China, on the other hand, has grown dramatically and continued with âindustrializingâ the country, which has cost the government billions of dollars. Throughout this course, we will investigate the ongoing trade between these two countries, the costs of multinational companies that expand or complete business through the import and export exchange, and how the ongoing practice may create economic changes and instability for the individual organization.
Research the balance of trade in the United States and China and relate how historical changes in exchange and interest rates have affected imports and exports between the two countries.
Specifically address the following:
Explain how trade balance, interest rates, and exchange rates are related, and cite an example of how a rise or fall in one changes the others.
Does a deficit in China or the United States change the overall advantage or disadvantage of trade? Why?
Explore how the cost and quantity of imports and exports, such as electronic equipment, may be challenged by the rise and fall of these rates.
Incorporate the fluctuations of supply and demand into the costs incurred and decide ways management calculates estimations for further product needs.
Explain the philosophy of âinternational crowding out,â citing an example of how this may occur, and describe how excessive borrowing in one country has affected interest rates in the United States.
As an example, China and the United States âborrowâ from each other to finance needs by purchasing government-backed securities from the other country. This practice provides one country with additional funds and also gives the purchasing country more control over interest rates or âborrowing costsâ in the future. How does this influence interest rates in the domestic country and foreign country? Can one country gain control over another financially by continually financing another countryâs debt?
