How Does the US Export Inflation?

Apr 4, 2023 | Finconomics 101, No Bull Economics

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One of the main global complaints against the hegemony of the US$ is that it allows our country to export inflation. Here is a primer on how that works.

Commentary

While a strong U.S. dollar helps manage domestic inflation by making imports less expensive, it can be inflationary for other countries that pay for their imports in U.S. dollars (a common practice globally). Notably, this is not just true as it relates to trading partners buying U.S. goods as it also applies to global trade denominated in US$ between any 2 countries (a common practice). This means that Japanese imports from Mexico denominated in US$ become more expensive in Yen terms if the US$ appreciates against the Yen. In conclusion, stable currencies are not just good for trade, but also for international relations.

USD Appreciation Graph
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