Page 110 - Business Principles and Management

Chapter 4 • International Environment of Business

FIGURE 4-6 U.S. Balance of Trade (in billions of dollars)

1980 1998 2000
1. Total exports of goods 224.3 670.2 807.5
2. Total exports of services 47.6 263.7 343.9
3. Other income from abroad (e.g., royalties) 72.6 258.3 379.5
4. TOTAL 344.5 1,192.2 1,530.9
5. Total imports of goods 249.8 917.2 1,472.9
6. Total imports of services 41.5 181.0 296.1
7. Other payments to foreigners 42.5 270.5 430.0
8. TOTAL 333.8 1,368.7 2,199.0
9. Balance on trade in merchandise (goods) 25.5 247.0 665.4
10. Balance on trade in services 6.1 82.7 47.8
11. Net balance on trade (9+10) 19.4 164.3 617.6
12. Current account balance (4-8) 10.7 176.5 668.1

Source: U.S. Department of Commerce Bureau of Economic Analysis, www.bea.gov

course. However, the United States has several advantages. Countries every-
where value its currency, the dollar, because the United States is a stable society, Why has the United States
government policies are pro-business, and its economy is the world’s largest and usually had an advantage
richest. Foreign banks and governments are willing to lend money to the when it comes to the
United States to enable it to pay for the excess product it buys. balance of trade?
Not all countries are so fortunate. Countries with
prolonged trade deficits may not be able to pay their
bills or may have to limit international trade. In addi-
tion, their governments may have to place restrictions
on the outward flow of money or on the activities of
foreign businesses in their countries. At such times,
they may obtain financial assistance and economic
advice from the International Monetary Fund.
When deficits continue, it means that companies
and individuals are demanding more foreign cur-
rency to buy the foreign goods. For instance, if
Americans buy more Korean toys, the demand for
the Korean currency—the won—goes up, because
American toy companies will need won to pay the
Koreans. When demand increases for won, more dol-
lars are needed to buy won. Thus, the value of the
dollar declines in relation to the won. In turn,
Korean products become more expensive for Ameri-
cans, whereas American products become less expen-
sive for Koreans. Theoretically, at this stage, higher PHOTO: © GETTY IMAGES/PHOTODISC.
prices discourage the sale of Korean products in
America, and lower prices encourage the sale of
American products abroad. In this way, the deficits
can be reduced and eventually eliminated.

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