<p>I'm struggling with this question below for my macroeconomics course.</p>

<p><strong>If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be affected in foreign exchange markets?</strong></p>

<p><strong><em>Answer:</em> Supply - Decrease. Currency - Appreciate.</strong></p>

<p>I think I understand, but need someone to say "no" or "yes, but..." to my rationale.</p>

<p>If Argentina imposes a protective tariff, that's to encourage Argentinian domestic industry and exports and discourage imports into Argentina. I know that if a country exports more than it imports (a "favorable" balance of trade), there is a greater demand for its goods - and thus, a greater demand for its currency - on the Foreign Exchange Market. With that said, when demand for Argentinian currency increases, the price level increases, and the Argentinian currency appreciates.</p>

<p>I think I can also explain why supply decreases...is it because demand increases? But, we don't typically say "Oh, since demand increases, I'm also going to decrease supply", though. Can somebody explain, please?</p>

CC BY-SA 4.0
2019-05-12T14:13:38.583Z
That is a little weird. Have you discussed in class central bank responses to forex movements, e.g. sterilization? It's not clear if the question intends to be "ceteris paribus" with respect to what the Argentine central bank might do.
fantastic peace and prosperity
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2019-05-13T13:54:13.270Z
Nearly identical question asked here: https://economics.stackexchange.com/questions/15082/do-import-tariffs-tend-to-increase-a-countrys-exchange-rate-if-so-why
Clinical_Coder
<macroeconomics><money-supply><foreign-exchange><tariffs>
Effect of Import Tariff on Supply of Currency on Foreign Exchange Market
Thomas
# Effect of Import Tariff on Supply of Currency on Foreign Exchange Market

(Asked by: username_0 on 2019-05-12)

I'm struggling with this question below for my macroeconomics course.

**If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be affected in foreign exchange markets?**

***Answer:* Supply - Decrease. Currency - Appreciate.**

I think I understand, but need someone to say "no" or "yes, but..." to my rationale.

If Argentina imposes a protective tariff, that's to encourage Argentinian domestic industry and exports and discourage imports into Argentina. I know that if a country exports more than it imports (a "favorable" balance of trade), there is a greater demand for its goods - and thus, a greater demand for its currency - on the Foreign Exchange Market. With that said, when demand for Argentinian currency increases, the price level increases, and the Argentinian currency appreciates.

I think I can also explain why supply decreases...is it because demand increases? But, we don't typically say "Oh, since demand increases, I'm also going to decrease supply", though. Can somebody explain, please?

**Tags:** macroeconomics, money-supply, foreign-exchange, tariffs
> **Comments:**
> **username_1**: That is a little weird. Have you discussed in class central bank responses to forex movements, e.g. sterilization? It's not clear if the question intends to be "ceteris paribus" with respect to what the Argentine central bank might do.  
> **username_2**: Nearly identical question asked here: https://economics.stackexchange.com/questions/15082/do-import-tariffs-tend-to-increase-a-countrys-exchange-rate-if-so-why  

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