Inflation is the most commonly used economic term in the popular media (Hellerstien). A Nexis search in 1996 found 872, 000 news stories over the past twenty years that used the word inflation (Hellerstien). Of those 872, 000 I am sure that there is a lot that have used the word inflation to express the impacts it has on international trade. Inflation effects trade through increased and decreased prices and value that along with other elements, can influence imports and exports. Changes in prices here and abroad are also important. If we experience more inflation here than the rest of the world is experiencing, our goods cost more and thus our imports will rise and exports will fall (Buckles).
The reverse is true if the rest of the world experiences a greater rate of inflation than we do in the United States (Buckles). For example, in the news paper today there was an article that reported that the US dollar has fallen against the euro. In the article it exposed that there was a dramatic decline in the amount of money international investors were spending of U. S.
securities. They had spent 4. 19 billion in September which was a big decrease sense August when they spent 49. 9 billion (Bandar). With fewer purchases means the United States will have trouble financing its current-account deficit which is running at around 5 percent of gross domestic product (Bandar).
This has inadvertently caused a drop in dollar value against a euro. Yesterday at 5: 28 p. m. in New York the dollar traded at 1. 966 per euro, compared with 1. 1749 Monday (Bandar).
The euro was only one of the 15 major currencies that the dollar has declined against (Bandar). As a result the price of gold overseas had increased to 400. 25 an ounce (Bandar). Sense are dollar is worth less compared to euros our international trade with Europe would be affected. Thus, purchasing imports from Europe would cost more which enables us (the US) from buying as much as we could before the dollars value dropped. Also since the United States is in deficit from declined sells of US securities the government will have to increase price of our exports and buy less imports.
The increased price on our exports might dim the interest in other countries for international trade. In addition, the article said that there were going to be tariff increases on foreign goods (Bandar). This would slow consumer spending in the United States. The tariffs would raise prices at home which would cause disposable to fall because people would have to spend more on the goods they are buying (Bandar). The United States relationship with China is another example of inflation's impact on trade. As of July 12 2002 the yen is 116 against the US dollar (Shiokawa).
Every one dollar of US money equals 116 yen in China. The drastic difference in inflation can have serious impacts on trade amongst each country. The United States can only buy small amounts of very essential goods from China. Sense there is such a big difference in money value the United States can't afford to buy to much of a good or it may cause a debt. China is the worlds leading manufacture of technology. China has many machines and programs that no other country has.
If the yen stays as high as it is then the US will never be able to reach the level of China. The US simply could not afford to import the new technologies because of how expensive it would be. Imports and Exports are influenced by a variety of factors. Increases in income in the United States will increase the demand for all goods and services, including those that are imported (Buckles). Thus, imports will rise as incomes increase (Buckles).
Increases in income in other countries have a positive effect on our exports. Decreases in income here cause exports to fall (Buckles). Decreases in income among our trading partners cause our exports to fall (Buckles). During the Great Depression in the early 1900's income was low. The stock market had been a major investment and source of income for many Americans. When the stock market crashed Americans lost money (income) and were unable to gain it back fast enough.
Sense the majority of the US had little income they could not afford to spend as much as before. So exports to other countries decreased. The Great Depression is an example of how a decreased growth in spending impacted exports. Changes in tastes influence import and export levels (Buckles). Recently there has been an increase in fruit and vegetable imports (Buckles).
United states residents new found taste for fruits and vegetables makes them in high demand. That high demand will make residents spend more for imports, thus increasing imports from countries exporting fruits and vegetables. Also as the rest of the world finds U. S.
software and airplanes more attractive, our exports will rise. Changes in exchange rates influence exports and imports. Exchange rates are the prices at which currencies are exchanged (Buckles). For example, one U.
S. dollar can buy (or be exchanged for) approximately 10 Mexican pesos in international currency markets (Buckles). Or, one Mexican peso costs about 10 cents. Most exchange rates are determined in open markets, and the rates depend upon the supply and demand for each currency (Buckles). If the international value (price) of the dollar increases (say from 10 pesos per dollar to 12 pesos per dollar), U. S.
goods become more expensive for Mexicans and goods from Mexico become cheaper for people in the United States. Before the increase in the international value of the dollar, automobiles costing $20, 000 in the United States cost an individual in Mexico 200, 000 pesos (Buckles). After the change in the value of the dollar, the same car will cost will cost someone in Mexico 240, 000 pesos. Thus, Mexicans will purchase fewer U.
S. cars. At the same time, Mexican goods become less expensive for people in the United States. For example, a Mexican vacation stay that costs 40, 000 pesos use to cost someone from the United States $ 4, 000 (Buckles).
Now, the vacation is cheaper for the United States as the cost of a peso falls from $. 10 to $. 083 (Buckles). Inflation has proven to be an extremely potent aspect of international trade. Inflation has the ability to completely change how or who a country will import and export. Imports and exports truly are capable of being influenced by many elements of economics.
Inflation does effect trade through increased and decreased prices and value that along with other elements, can influence imports and exports.