Conflicting Desires: Strong Dollar Actually Hurting US Economy

For many Americans, the value of the dollar in trade terms is a point of pride. Older generations remember a time when they could buy things for a fraction of what they cost today. Many view a strong dollar as a positive condition and something for which the nation should strive.

For many Americans, the value of the dollar in trade terms is a point of pride. Older generations remember a time when they could buy things for a fraction of what they cost today. Many view a strong dollar as a positive condition and something for which the nation should strive.

In some ways, these people are right. A strong dollar means that what Americans have in their wallets today has more buying power than it did just a few months ago. Thus, some foreign goods feel less expensive than ever before. Some take advantage of these strong dollar periods to do shopping on foreign trade sites, or to engage in forex trading. These can be great personal advantages to a strong dollar.

Unfortunately, as a report by MarketWatch points out, a strong dollar can actually have a negative impact on US exports. While the dollar jumped up 14% in value from July 2014 until March 2015, American exports dropped by 5% over the same period. Although that may at first blush appear to be a net gain, it is important to remember that comparing these two figures is like comparing apples and oranges. The real net result is a very expensive loss of trade volume thanks to foreign buyer’s decreased ability to afford the goods offered. In other words, although it costs American manufacturers and agricultural interests the same amount to produce the goods offered, the foreign market cannot afford to buy as much of it because the de facto price (thanks to conversion rates) has increased.

Loss in sales leads to a reduction in production and fewer jobs. While the federal government believed the US economy grew by 0.2% in the first quarter of 2015, most analysts believe the government will revise that figure later in the month to indicate a slight contraction instead. While one cannot blame the contraction on the value of the dollar alone (an unusually bitter winter was another major contributor), it certainly played a significant role in the harm the economy suffered.

The dollar surged in value thanks to a variety of factors that included an expectation that the Federal Reserve would raise interest rates (still projected to occur later this year). Investors also bought US currency to benefit from the dollar’s appreciation, pushing its value even higher. The economy itself contributed, growing faster over the course of several years than most other nations’.

However, in another mixed blessing, the dollar appears to have stabilized in value (for now). This is probably due to the slow first quarter and the recovery of the global economy as a whole. If that is the case, it could considerably brighten the American trade picture later in 2015 and early 2016. Yet, the dreams of an older generation to see sodas return to a cost of just a nickel are likely a thing of the distant past, never to return.