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


1 Answer 1


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.

  • 3
    $\begingroup$ There are probably several exceptions to the rule. It just means that the exchange rate is not the only factor in manufacturers profitability. $\endgroup$
    – Giskard
    Commented Jan 27, 2016 at 16:46
  • $\begingroup$ Quality+preferences being another two... $\endgroup$
    – ChinG
    Commented Jan 27, 2016 at 21:58

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