Economics Stack Exchange is a question and answer site for professional and academic economists and analysts. It's 100% free, no registration required.

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

I am reading this article about the strengthening of the US Dollar when I came across this paragraph:

"But there are reasons to be cautious. A strong dollar will squeeze American manufacturers, which have otherwise benefited from falling energy prices and rising wages in China. That will weigh on growth in the United States and further suppress inflation, which is already well below the Fed’s target."

Am I understanding it correctly that because the Dollar is getting stronger that it will hurt American Manufacturers?

Source article: http://www.msn.com/en-us/money/markets/the-dollar-keeps-rising-for-good-or-evil/ar-BBoJUq2?li=BBnb7Kz&ocid=iehp

share|improve this question
up vote 12 down vote accepted

Most manufactured products are sold domestically, but even so a strong dollar will (usually) cause a decline in sales and profitability of US manufacturers. The reason for this is that a strong dollar makes foreign products relatively cheaper, not just manufactured products, but all products. Therefore it becomes cheaper for person to buy, say a foreign-made washing machine compared to an American-made washing machine.

What news articles like this don't mention is that a weak dollar hurts Americans because it makes everything they buy, like gasoline, more expensive, not just manufactured goods.

The exception to the rule is during wartime. For example, as a result of World War II the United States dollar became stronger AND manufacturing profitability increased at the same time. But this was because competitors in Europe had all their factories in ruins, which is not the case today obviously.

share|improve this answer
3  
There are probably several exceptions to the rule. It just means that the exchange rate is not the only factor in manufacturers profitability. – denesp Jan 27 at 16:46
    
Quality+preferences being another two... – ChinG Jan 27 at 21:58

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.