Wednesday, July 25, 2007

International Trade's Role in the Economy

During the past four decades, international trade has grown from a relatively insignificant slice to nearly a third of U.S. domestic economic activity. To cater to the global economy's palate, U.S. manufacturers and service industries have specialized and become more efficient in producing goods and services that suit the international menu.

The U.S. external sector—the sum of all imported and exported goods and services—is currently equivalent to 30 percent of overall domestic economic activity, or gross domestic product (GDP). Just four decades ago, however, the share of foreign trade represented a mere 10 percent of GDP. To grow as a share of GDP during the past 40 years of significant U.S. economic prosperity, the external sector had to expand more than the overall economy did. Imports, increasing at an average rate of nearly 11 percent each year, led the external-sector expansion, while exports grew at an average rate of more than 9 percent per year.

In addition, U.S. goods-producing industries have become increasingly more dependent on international markets. Almost two-fifth of the revenues earned by U.S. manufacturers now come from sales abroad compared with less than 15 percent 40 years ago.

Read more here.

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