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Donald Trump imposes tariffs on European products such as wine, oil or cheese. How does it...

Donald Trump imposes tariffs on European products such as wine, oil or cheese. How does it affect the euro/dollar exchange rate?

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When there is a tariff imposed on European goods, this is likely to increase net exports because imports will be reduced. Price of imported European goods will increase in the United States as a result of tariff. This will decrease the demand for Euro and will increase the demand for dollar which means there will be a real effective exchange rate appreciation of the US dollar against Euro. Hence, euro dollar exchange rate will fall.

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