While economists differ on the effect of foreign currency exchange rates on trade, among many a rational consumer market would be discouraged to purchase imported goods when the price for those goods go up due to the increase in value of the foreign currency. Well, maybe the U.S. market isn't acting rationally.
U.S. Trade and Foreign Currency Exchange Rates
From February 2002 to May 2006, there was an 18% depreciation of the U.S. dollar against foreign currencies that helped boost U.S. agricultural exports, reports Mathew Shane and William Liefert in the article "Weaker Dollar Strengthens U.S. Agriculture," Angus Journal, March 2007. While U.S. exports have increased due to the weaker U.S. dollar, U.S. import consumption has also increased. This interplay keeps the U.S. trade deficit gap from shrinking.
The Wall Street Journal’s Mark Gongloff notes, that the U.S. deficit with China rose 33% between 2005 and 2008, while the dollar fell 18% against the yuen. In November 2009, the U.S. Commerce Department reported that the U.S. trade deficit grew 18 percent to $36.5 billion, a $5.7 billion increase from January 2009 – the biggest surge in 16 years even in light of a weaker dollar.
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