What real economic consequences does a strong or weak dollar exchange rate have? | The Blk Projek
What real economic consequences does a strong or weak dollar exchange rate have?
A significant change in the dollar exchange rate has a major impact on international trade. A strong dollar (equivalent to, for example, a weak euro and a low euro-dollar exchange rate) means high purchasing power for Americans abroad, as the dollar’s value increases against other currencies. At the same time, however, US companies face a low level of competitiveness as a strong dollar increases manufacturing costs in the United States compared to other countries.
When the dollar is strong, it is more worthwhile for companies to produce goods outside the expensive dollar zone and sell them in the USA. A strong dollar can therefore have disadvantages for the US economy. At the same time, however, imports to the USA, for example of raw materials, are cheaper. This is why there is often a negative correlation between raw material prices and the US dollar. This means that if the dollar appreciates, raw material prices will tend to fall.
If the dollar falls in value against other currencies, exports from the USA become cheaper. This is good for the US economy as it can offer its products cheaper on the world markets. It is more worthwhile for companies to produce in the USA and sell the products all over the world. At the same time, holidaymakers from abroad receive more US dollars for their currency and can therefore afford more on a trip to the USA.
This can also have a positive impact on the US economy. However, Americans lose purchasing power abroad, so they can afford less when traveling. Imports for US companies are also becoming more expensive when the dollar is weak. For example, this could result in rising raw material prices in the United States.