Globalization on Trade Imbalances Globalization A-Level Coursework

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The depreciating dollar improves the price competitiveness of U.S. exports in the foreign market thus reducing the deficit in the balance of trade. Dollar depreciation has a quicker and stronger impact to the exports than it has to the imports.

The slow effect of depreciating dollar on the trade balance resulted from import volumes increase. The U.S. imports were decreased in response to exchange rates with a dollar depreciating slowing the growth. The rapid shift of trade towards low cost emerging economies continues to corrode U.S. price competitiveness, which would improve the depreciating dollar. The consistence increase in oil prices also acted as a main contributor to the increased depreciation of dollar. This lead to commodity inflation affecting people's lives directly. U.S. enjoyed a period of better economic growth in year 2006 boosting the imports. This helped in increasing the value of the dollar restoring a better economy to the UnitedStates (China Daily2010).

The rising prices of imports caused by depreciation of the dollar reduce the purchasing power of the United States consumers and businesses that purchase imports. There has been about ten percentage decrease in terms of trade. This is substantially lower compared to dollar depreciation that reflects a positive change in factors other than the exchange rates. To preserve the market share in the U.S. market, importers has show a tendency to incompletely pass through exchange rates depreciations of dollar to the prices of commodities. This achievement absorbs a portion of the exchange rate through slimmer profit margins. This reduces the negative impacts of currency depreciation to the economy's purchasing power.

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Dollar exchange rate reflects fundamental economic forces that influence the demand and supply for the assets on international financial market. There is a large potential destabilizing imbalance in the global economy following the depreciative trend of the dollar. U.S. experience persistent trade deficit and large accumulation of international debts. There has been weak domestic demand due to dollar depreciation. It is anticipated that the dollar's continuity to decline in future will be due to increased demand for the imports with fewer exports. It is expected that dollar will not continue laying its role as the main reserve currency. This has resulted from the collapse of the U.S. mortgage market resulting to global recession.

The continued fall of the value of the U.S. dollar affects the lives of the Americans negatively. There is increased level of unemployment and general inflation in the goods and services market. The living standards of the people continue to decline due to high living standards. This does not only affect the Americans but also the other countries that trade with it. China and other Middle East countries try to take advantage of declining United States economy to build theirs. This is not very smooth since they need them to purchase their products. They place their oil products at a high market price but following the monopoly powers U.S. stain to purchase. The future of global economic development is really threatened......

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