How is inflation affected by foreign trade?

Inflation can be impacted by foreign trade if a country with significant economic power pulls out of major trade agreements or investments due to politics, natural disasters, or economic turmoil. This can put an economy in a downward economic spiral and lead to either increases or decreases in inflation. More commonly however, foreign trade is impacted by inflation rates.

Countries and businesses will decide to trade with countries with favorable inflation rates. Many of these investments are long term and will not be impacted by minor fluctuations, however major fluctuations in inflation rates may result in businesses pulling out of trade deals.