How Pass-Through Affects Trade Balance Adjustment - Article Example

If say the deficit is overly high, then there exists an imbalance in the foreign exchange market. Therefore, it is evident that it is the best card play for the American foreign exchange interest to make and ensure the restoration of its international competitiveness.

Delving into the influence borne by the dollar deficit concerning the nation’s trade adjustment we see that there exist three main pillars: Invoicing international transactions, High US distribution cost, and Market share concerns of foreign export (Goldberg and Dillon, 5) A consolidated view on the invoicing aspect reveals that the import invoiced in dollars s just as the export, hence a dollar deficit acts as a saw that cuts both sides. Furthermore, the dollar deficit in a way results in high marketing and distribution costs that are subsequently relayed to consumers in form of high prices on goods.

Consequently, a low trade exchange is experienced between the US and here trade partners and most devastating is that there arises an unparallel trade system for example due to the dollar deficit European goods Marketed to the US on a Euro basis have the upper hand.