Manufacture This

The blog of the Alliance for American Manufacturing

A tough U.S. currency note certainly doesn't add strength to U.S. exports.

A strong dollar. Our dollars are strong! Sounds like a good thing, right? ‘Merica! Strong! It’s good to be strong.

But the term is misleading. A strong dollar may be a boon to some corners of the economy, but it buffets others. And a strong dollar particularly puts the squeeze on many American manufacturers who find most of their markets overseas.

Here’s how: When a dollar is strong, or worth more, its purchasing power goes up. That means imported goods are made cheaper on American shelves, and shopping in the United States, therefore, is easier. Ever wonder how all of that Chinese-made stuff at Walmart got so cheap in the first place? It’s not all due to low-cost manufacturing overseas. We've had a strong dollar since the Clinton years.

The dollar’s value, in fact, is at a nine-year high. And that has a tangible effect on American exporters. From The Wall Street Journal:

“If this were affecting 7% or 9% growth, we would not be so concerned,” said Steven Winoker (an analyst at Sanford C. Bernstein & Co.) who estimates currency issues will reduce revenue growth for industrial and electrical equipment companies by 2.6 percentage points or more in 2015. “But with most companies at low/mid-single-digit underlying growth rates, this headwind becomes material.”

That means tight times for U.S. manufacturing. From another WSJ story:

Manufacturers have long been under pressure from intensifying global competition, but the dollar’s sudden ascent adds more urgency. Since mid-2014, the dollar is up nearly 19% against the euro and 17% against the yen.

But the rise and fall of the dollar can’t be attributed to fluctuations in currency markets – not entirely. Currency manipulation – a practice many foreign governments use to give their exports a boost at the expense of our own – remains a reality that everyone from Art Laffer to labor unions recognize. Some economists think that practice costs America millions of jobs a year.