An increase in the exchange rate would make imported goods less expensive and, depending on the elasticity of demand for imports, could reduce import expenditure. A decrease in the exchange rate would make imported goods more expensive and thus affect the level of import expenditure. The type of trade policies that a country adopts will affect its level of import spending. If a country decides to adopt a more liberalised trade policy by, say, reducing tariffs (taxes) on imports, then import expenditure would be expected to rise. However, if a more protectionist set of policies were to be adopted then import expenditure would fall, ceteris paribus. If the inflation rates of trade partners were to vary notably then this might also affect the level of import spending as noted above. Thus, net exports (the difference between export revenues and import expenditure) depends on domestic national income (affecting the demand for imports), foreign national incomes (affecting the demand for exports), changes in exchange rates, changes in trade policies, and relative inflation rates.
