Question

Why do american householders and businesses buy things from foreigners? What are the characteristics of the items we buy from foreigners? What are the characteristics of the things we sell to forgeiners?

Answer 1

At that time, no country today, including the United States, can be totally self-sufficient without suffering a high cost. All countries need to —or choose to—import at least some goods and services for the following reasons:

1. Goods or services that are either a. essential to economic well-being or b. highly attractive to consumers but are not available in the domestic market
2. Goods or services that satisfy domestic needs or wants can be produced more inexpensively or efficiently by other countries, and therefore sold at lower prices

It is helpful to illustrate these points by looking at the case of the United States, precisely because it comes closer to being self-sufficient than any other country for the reasons mentioned above (several climactic zones, resources, able workforce). Coal, copper, iron, silver, and nickel are just a few of the natural resources the United States possesses in large quantities that other countries do not possess.

There are some economically essential goods, such as tungsten and oil, which the United States either does not produce at all or does not produce in sufficient quantities to serve domestic needs at a reasonable price.

The United States cannot meet its oil consumption needs exclusively through domestically produced oil; in 2012 the US consumption of oil dropped to a 16 year low, a total of 18.56 million bpd, as a result of a weak economy (Reuters, 2013). Meanwhile, the domestic production of oil rose sharply in 2012, with 6.4 million bpd being produced in the U.S. (Fowler, 2013). This means that the U.S. will need to import less and steadily become more self-reliant, with projections stating that U.S. output will overtake Saudi Arabia by 2020, making it the largest producer for about five years (Nguyen, 2012).

The United States could, in theory, abandon foreign oil imports, but it would be a costly decision because it is not clear that domestic reserves of oil, both those that are known and those that have yet to be discovered, could satisfy current domestic demand.Even if U.S. oil reserves were adequate, generating the extra oil necessary to fill the gap now filled by imported oil would be extremely costly. Many foreign countries are able to produce oil much more cheaply. Besides, accessing the additional U.S. reserves would require many years of research and development.Other energy sources—for example, coal, nuclear power, or hydro-electric power—could conceivably be substituted for oil imports, but complying with the respective environmental regulations, along with the cost of producing additional energy from these sources, would be very expensive. After all, oil currently satisfies more than 40 percent of America’s energy needs (including more than 99 percent of the fuel for cars and trucks) precisely because other domestic sources of energy are either not sufficiently abundant to cover demand or are signficantly more expensive to produce than oil (DOE, 2008).