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Terms of trade
Release time: 2023-03-15
The exchange rate of exports and imports. It is also called the price comparison of import and export commodities, which is usually expressed by an index, namely the price comparison index of import and export commodities. The calculation formula is: terms of trade index=export price index/import price index × 100。 For example, for the base period of the previous year, the price index of import and export commodities is 100, and the price of import and export commodities has increased, but the increase range is different. If the price of export commodities increases by 10%, and the price of import commodities increases by 5%, the terms of trade index will increase.
The index of terms of trade is higher than the base period, which means that the price of export goods is higher than that of import goods, that is, the country can exchange less export goods for more import goods, which is beneficial to the country and is the improvement of the terms of foreign trade. On the contrary, if the price index of imported goods increases faster than that of exported goods, even if the price index of exported goods remains unchanged or decreases, then the terms of trade index is lower than the base period, which means that a country needs to export more goods to exchange for the same imported goods as the original one. Obviously, this is not beneficial to the country and is the deterioration of the terms of trade. This change is usually used as an indicator of unequal exchange between developed and developing countries.
The term of trade refers to the ratio of the export commodity price index to the import commodity price index of a country. Taking a certain period as the base period, the terms of trade is 100. If the terms of trade in the comparison period are greater than 100, it indicates that the country can exchange less export goods for the same amount of imported goods, and the improved terms of trade is beneficial to the country; If it is less than 100, it indicates that a country needs to export more goods in order to exchange for the same amount of imported goods as the original one. The deteriorating terms of trade are detrimental to the country.
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