In 1995, Treasury Secretary Robert Rubin asserted that a strong dollar is in the US national interest, a mantra repeated by each of his successors. They’re partially correct since the effects of the robust buck, which has soared this year, help some while harming others.
The rising greenback makes US imports cheaper, favoring American consumers. Ditto for US businesses that import manufactured goods and services, important offsets to surging domestic inflation. Commodities are the exception. Of my list of 45 that are traded internationally, 42 are priced in dollars, including crude oil and other hydrocarbons; corn, wheat, soybeans and other agricultural products; base metals such as lead, zinc, copper and aluminum; and gold, platinum and silver. The three exceptions are palm oil, priced in Malaysia ringgit, wool traded in Australian dollars and amber priced in Russian rubles.
So, the rising dollar doesn’t affect their dollar prices directly, but does make them cheaper to Americans indirectly as higher dollar costs reduce global demand by pricing foreigners with weak currencies out of the market. In effect, the robust greenback depresses economic growth.
The stronger dollar also retards American exporters by making their products more expensive for foreign buyers in their own currencies. Microsoft Corp. said in its earnings report last month that a strong dollar reduces its revenue. It also forces domestic producers to cut their costs and shave their profit margins in order to compete here and abroad. Conversely, foreign exporters to the US can reduce their dollar prices somewhat and still increase their revenues in their own currencies.
The detrimental effects of a robust buck on American multinationals are shown in the foreign trade numbers. Since the beginning of 2020, US exports have risen from $2.46 trillion to $2.91 trillion but imports jumped from $3.01 trillion to $4.22 trillion. So, the foreign trade deficit expanded from $546 billion to $1.32 trillion. Faster economic growth here than abroad also hypes US imports.
With the pandemic subsiding, Americans are re-emphasizing services including foreign travel, and their dollars buy more yen, euros and sterling to spend abroad. But US businesses that cater to foreign visitors such as hotels, resorts and car rental companies find visitors from abroad with fewer dollars to spend.
