Why an open economy is not good for the U.S.

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Why is the Open Economy not good for the US

There are two types of economy applied worldwide . The closed economy is the economy that does not interact with other economies in the world while the open economy is the opposite . Henry Thompson (2007 ) explains that the open economy allows international investment and free trade from the countries that it interacts with . There are several factors that affect the open economy system . These include investment , exports and imports , interest rate , exchange rate and national output

. The open economy can be considered as non-beneficial for the United States . This would be further explained in the next few paragraphs

First argument why the open economy is not good for the US is that the trade deficits of the country is widening . The demand for the U .S exports depends on the economic activity globally . The increase of Foreign output tends to make U .S . exports increase . The imports to United States raises the exports of the rest of the world because these are from other countries . Usually , there is a balance of trade , ideally speaking , imports must be equal to exports . If ever that the exports is higher than the imports , it is called a trade surplus and if imports are higher than the exports it is then called a trade deficit . In this case the US trade deficit increases this only means that the imports of the country are higher than the exports as time goes by . An example is stated by William Greider (2004 . He had reported in his article in the Nation that

Despite ebbs and surges , the gap between US exports and imports has been steadily widening across three decades . The trade deficits of the early 1970s (due mainly to soaring oil prices ) were trivial in size , but Americans were shocked in 1978 when the deficit hit 30 billion (TV sets and some cars were now made in Japan . During the 1980s , the trade deficit expanded enormously , as Washington 's strong- dollar policy crippled US manufacturers and companies moved jobs and production offshore in swelling volume . After a recession and dollar devaluation the gap shrank briefly , but soon began expanding again (May 10 , 2004 issue

As shown from the facts stated by Greider showed that the free trade affects the United States in a negative way . It also shows that the consumers in United States patronize more and more imported products from other countries . The country 's culture of consumerism had also helped in increasing the trade deficit

Second Argument is that foreign investments in America are very high and it had made America a Debtor Nation . According to William Cline (2005 ,

. 1 , the United States was known before as the world 's largest creditor but now it had been known as the world 's largest debtor . As shown in the article of Cline (2005 ,

.1 , in the end of the year 2004 the country 's external liabilities had amounted to 2...