Economics

Hi,

When foreign trades enter a country that time the development of the country increases and the people of its became self-independence. For this reason country and its price of products also increases.

Hope this reply may be help you.

Best Regards,
David

That last reply is pretty bad. Just because foreign trade enters a country doesn't mean a country becomes self-sufficient.
Back to your question. What do you mean by foreign trade??
If you mean imports then; imports can affect inflation by pushing up the price of goods households typically purchase. For example, if you live in a country that produces low cost, low quality toothpaste, then imported toothpaste will be relatively more expensive, but also more popular (due to superior quality.) Since the imported toothpaste is now in the basket, CPI can increase.
OR
If your country relies on imported raw materials then an increase in the price of raw materials will translate into higher priced goods sold domestically. Again, prices rise and inflation ensues.

In 1950, merchandise imports into the U.S. were only about 3 percent of U.S. GDP; as of 1970 they were nearly unchanged at 3.8 percent;by 1980 they had risen to 9 percent; by 1990 they were about the same at 8.6 percent; by 2006 they had risen to 14 percent.

The sudden rise in imports as a percentage of GDP from 1970 to 1980 was probably the result of the 1970s era oil shocks, where the OPEC cartel increased the price of oil at a time when domestic U.S. oil production was declining.

The reliance on suddenly more expensive oil imports triggered a serious inflation problem in the U.S., since oil affected gasoline prices which affected wholesale and then retail prices, as it cost more to ship and distribute those goods; it also affected wholesale manufacturing prices since petroleum was an input into all kinds of products. This inflation started in the Carter administration and extended into the early Reagan years.

The change from 1994 onwards probably reflects U.S. trade deals like NAFTA as well as formal and de facto deals incorporating China into international trade unaffected by political sanctions for human rights violations, as Congress voted to give China most favored nation trading status without further annual debates, and China's subsequent entry into the World Trade Organization.

Cheap Chinese imports can tamp down U.S. inflationary pressures. The increased Chinese demand for commodities can, on the other hand, drive up everything from food to oil prices.

When U.S. consumers buy imports, that money supports the wages of foreign workers, few of whom consume American goods and services; this decreases demand for U.S. goods and services by siphoning off American consumer buying power. Obviously, cheaper imported goods can't make up for this since companies who relocate to China don't pass on ALL of their labor cost savings in the form of lower consumer prices, but only some of them, with the difference going to increased corporate profits. Thus, American consumer power falls while subsidizing fat-cat profits, which explains why corporations are sitting on mountains of cash while the domestic economy remains stuck in low gear.

An indirect but important effect of trade on inflation occurred when millions of good paying unionized manufacturing jobs went to China. These factory workers, many of whom had high school diplomas or less, had to take entry level service sector jobs which paid less.

This decreased domestic demand. However, the loss of demand was then offset by increased consumer borrowing (credit card spending) and by asset appreciation during the housing bubble. The collapse of that bubble and the end of easy credit after the related banking crisis put an end to that. Now, as most of U.S. economic growth increases the wealth of those at the top (who invest rather than spend it on goods and services), domestic demand remains weak and thus so does economic growth. Until wages and salaries for the bottom 90 percent see gains, or unless banks again ease consumer lending restrictions to pre-recession standards, the doldrums are likely to continue. This low demand keeps inflation low too.