Terms of Trade (1 Viewer)

[mattchan]

Hey, what are some methods of improving the terms of trade or reasons for a deteriorating terms of trade for Australia?

Would improvement be by an appreication of the dollar? Strong commodity prices?

 

[Rickdog]

one way would be to diversify australias export base or just sell more exports.

the deterioration of TOT could be caused by appreciation of $AU. our exports will look more expensive to overseas buyers, imports will be cheaper due to better buying power of $AU and this will also worsen the CAD

hope that helps

 

[sunjet]

Hey, what are some methods of improving the terms of trade or reasons for a deteriorating terms of trade for Australia?

Would improvement be by an appreication of the dollar? Strong commodity prices?

Yeah, strong commodity prices would push up export prices as more than 50% of Australia's exports are commodities. An appreciation would case a deterioration as it would decrease the demand for exports thus the prices would fall.

Remember terms of trade is export prices relative to import prices. So just selling more exports (increase volume) doesn't necessarily improve the terms of trade.

 

[mattchan]

Ok, i get what you people are saying but also, wouldnt an appreication cause an increase in export prices - thus increase in TOT?

 

[sunjet]

No because prices are done by demand and supply and demand would decrease as a result of appreciation.

I hope..

 

[HayleeKate]

An appreciation of the dollar is SHIT for Terms of Trade!
appreciation means our money buys more imports, so theyre more attractive to us as consumers, at the same time, it makes our exports more expensive for overseas buyer, so they will buy less.
imports increase, exports decrease... TOT pit falls.

 

[monique66]

Don't forget the long term effects!
If out TOT fall and the CAD deteriorates than investors are less likely to invest in Australia, causing a depreciation in the dollar. That will increase our international competitveness and increase our TOT and improve our CAD. Its sort of a two way process...

 

[HayleeKate]

Furthermore...
#1 economic activity affects TOT:
high activity = high consumption = high imports to supply consumption = low TOT
#2 economic activity of trading partners:
low partner activity = low demand for our exports = low TOT
The converse of both these obviously increases TOT
along with exchange rate these are the 3 biggest influences on TOT.

 

[sunjet]

yep just remember it's the price we recieve for our exports and how many imports we can buy with that