September 19, 2022
The impact of exchange rate on import and export trade
Economic common sense tells us that the appreciation of domestic currency means the depreciation of other countries' currencies. In export trade, the importing country of the same goods needs to take out more domestic currency, so the importing country may turn to other countries' commodities, which is not conducive to its own export. The depreciation of the domestic currency means that the currency of the other country appreciates, and the import of the same goods requires more domestic currency, which is not conducive to the export of the other country. 1. Changes in exchange rates cause changes in income, thus affecting import and export trade. The most direct manifestation of exchange rate change is the appreciation or depreciation of domestic currency. Currency appreciation will cause the price of imported goods to fall, while the price of export goods to rise, although not conducive to export, but can improve the balance of payments, currency depreciation can achieve the opposite effect. However, in fact, the impact of currency depreciation on income mainly comes from two aspects: currency depreciation will cause the price of imported goods to rise, the price of export goods to fall, thus worsening the terms of trade. At the same time, with the same nominal income level, consumers can only buy less goods, which leads to a decrease in real income, which inevitably leads to a decrease in the country's expenditure, thus improving the trade balance. In addition, if there are underutilized resources in the country, devaluation can stimulate domestic and foreign residents' demand for the product. According to the principle of Keynesian economics, people's economic expenditure will increase national income several times through the Keynesian multiplier, and the increase of national income will increase domestic expenditure, thus achieving a virtuous circle. According to the principle of the red price, people's economic spending will increase national income several times through the Keynesian multiplier, and the increase of national income will increase domestic spending, achieving a virtuous circle. 2. Exchange rate fluctuations cause price pass-through, thus affecting import and export trade. As mentioned above, the most direct manifestation of exchange rate change is the rise or fall in the relative price of currency, which is first reflected in import and export trade. However, in today's financial globalization, price changes in the international market will eventually affect the general price in the domestic market. Therefore, the change of exchange rate will cause the general domestic price level, thus affecting the trade volume of importers and exporters and the country's trade balance, which can be reflected in the following two aspects: First, currency appreciation is a fall in the price of imported goods expressed in the local currency, such as raw materials or semi-finished goods, which is then passed through the price, affecting the f...
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