Economic growth is one of the vital elements used to measure a country’s strength and power. Every government across the world concerns itself with the rate of economic growth, often considering different fundamental indicators such as inflation, unemployment, and GDP. An intelligent analysis of the measurements helps in the formulation of effective policies that stimulate prosperity since the slightest change in the parameters immensely affects development. For many years now, the United States has thrived as the world’s economic leader operating with the highest GDP with nations such as China following behind closely. For this reason, the US economy has become a point of reference for different countries aiming at growing their struggling or stagnant economies. Essentially, analyzing the current economic policy for both the US and Iceland is essential to understand the relative trade relationships and variation between the two nations in terms of trade policies used to promote economic growth and regulate key indicators such as inflation, unemployment, and GDP.
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In the past two years, the economic growth rate in the US has fluctuated unevenly. Several significant elements including government and private investments and consumer spending have increased thus positively influencing the GDP and aggregate demand (“GDP Increases in Third Quarter”). On the other hand, exports have declined considerably, but the reduction has had minimal impacts on the GDP growth rate despite the decrease in net gain from international trade. Nonetheless, the nation has witnessed an upward surge in terms of prosperity and economic growth in the past two years portraying an expansion phase in the business cycle.
Analyzing inflation in the US, it is notable that a positive change in the Consumer Price Index (CPI) has occurred in recent years. Majorly, only shelter, transport and medical services have been attributed to the highest costs. Otherwise, most other products have had stabilized pricing over the years, and they present the possibility of remaining stable even in the near future (“Consumer Price Index Summary”). On the other hand, the country has worked hard in the fight against unemployment. Evidently, the rate of unemployment is declining year after year, currently standing at 4%. The economy has opened various vacancies for Americans establishing a consistent positive trend which translates to increased productivity (“Central Intelligence Agency”). This positivity is vital as it directly affects the GDP since increased employment rates avail more individuals for the government to impose taxes on while increasing the level of consumption and savings.
Statistically, available data indicates that the US GDP experienced an impressive increase during the mid-quarters of 2018. Apart from that, issues of inflation have been adamant in recent years with the prices of most essential elements reducing to levels lower than recorded in previous years. Further, the rate of unemployment had decreased significantly thus increasing the working population. Most of the positive changes observed directly portray the nation’s economic progress while other elements such as healthcare and transportation costs call for intervention as a way of protecting progressiveness.
Besides, Iceland has had remarkable economic growth over the last two years even though it still falls behind the US by far. For several years in recent times, the nation had experienced a robust economy with a decreased unemployment rate and a commendable even income distribution. The absolute dependence on the fishing industry as the primary driving force behind economic prosperity raises concerns about its capabilities to provide a stable economic status. Noteworthy, the industry has experienced an increase in terms of exports about the fish and various fish products (“Central Intelligence Agency”). Apart from that, the industry majorly boosts the nation’s GDP by about a 12% value while employing about 5% of the population. Nonetheless, a decline in fish stock and fluctuations in prices at a global scale often influences the fishing industry thus having adverse impacts on the economy. This has allowed for the exploitation of other ventures such as tourism which has become a key pillar in the Icelandic economic development.
Concerning inflation, it seems as if it is increasing slowly as time passes. Various reasons relate to the issue, but the primary concerns are the nation’s weak exchange rates and high prices imposed on imports. Mainly, the two reasons significantly affect the expenditure, both by the government and private investors, with the spending being high for only a few commodities and gains. Further, the central bank plays a vital role considering the raised interest policy meant to counter the rising inflation (“Central Intelligence Agency”). Although the fiscal policy may appear broadly neutral, limiting the spending would be a crucial consideration since the pressure on prices continues to persist and the public debt is declining sluggishly. Nonetheless, the expected tax relief for low-income earners may slightly influence the inflation levels and redirect the economic status.
Noteworthy, the Icelandic economy has been trying to equip itself adequately to deal with unemployment. Their strategy involves a diversification approach with the nation venturing in both manufacturing and service industries. Diverse fields such as tourism, software production, and biotechnology among others have been vital employment providers to the population, reducing the unemployment rate to 2.8%. The working population operates in three major sectors including agriculture at 4.8%, the industry at 22.2% and services at 73%. Having a majority of citizens holding various employment positions has helped boost the GDP and change livelihood in the country.
Trade relationships between the United States and Iceland have recently started to grow considering the ties and agreements established between the two nations. Although Iceland mainly exports its products to the European Union, the US is currently trying to enact comprehensive economic policies to foster commercial investment (Wroughton par. 1). Iceland already has massive reserves of gas, oil, zinc, diamonds, iron, and oil. The nation’s position at the Arctic makes it ideal for world powers to seek alliances and trade ties, and the US faces the competition from China’s presence in the Arctic. Most importantly, the two nations have not yet concluded the strategies they will utilize in their trade relationships, and their options include forming a formal trade agreement or coming up with a set of common understanding that will help them cut costs and reduce barriers to international trading.
Undoubtedly, large volume of exports from Iceland’s goes to the EU and the European Free Trade Association (EFTA) countries. The next priority for the exports is usually the United States followed by Japan closely. For this reason, the US stands among the largest foreign investors in Iceland, having ties that go far back to the period after Iceland gained independence. The primary sector in which the US has invested involves aluminum production. The two countries already signed a Trade and Investment Framework Agreement in 2009, and their actions in the recent years aim at making the interactions more beneficial to each party.
Conclusively, the economy is the foundation on which any nation around the world stands and operates. Most governments are always making the necessary efforts to boost their economic statuses and improve the citizens’ livelihood. The US champions the world in terms of economic superiority, having a high GDP, low unemployment rate and low inflation rates. On the other hand, Iceland is among the nations with rapidly growing economies. It depends on fishing and tourism among other means to grow the economy, and has also diversified its sectors into agriculture, industry, and services. Both the US and Iceland interact in trading, but they are seeking to create a better channel to guide the trade relationships and eventually boost each other’s economies.
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Works Cited
“Consumer Price Index Summary: Economic News Release.” BLS.gov,13 February 2019 www.bls.gov/news.release/cpi.nr0.htm. Accessed May 5, 2019
“Central Intelligence Agency: The World Factbook.” n.d. https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html Accessed on May 5, 2019
“GDP Increases in Third Quarter: Third Estimate of GDP.” Bureau of Economic Analysis, 21 December 2018, www.bea.gov/system/files/2018-12/gdp3q18_3rd_fax.pdf. Accessed May 5, 2019
Wroughton, Lesley. “U.S. And Iceland Boost Trade Ties, Discuss Arctic Security.” 2019. https://www.reuters.com/article/us-usa-iceland-pompeo/u-s-and-iceland-boost-trade-ties-discuss-arctic-security-idUSKCN1Q41RT, Accessed on May 5, 2019