Is a Strong Dollar Good for the U.S.?

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One of the most common rhetoric in American politics is the campaign promise to make the U.S. dollar strong. At face value, it sounds like anything that’s strong should be a good thing, but globalization makes the answer tricky.

The short answer of whether a strong dollar is good for the U.S. or not is – it depends. There are a variety of factors at play that make it a good thing or a bad thing. The issue is a political one, though most Americans wouldn’t be able to explain exactly how or why a strong dollar would be beneficial or detrimental to the economy.

The case for a strong U.S. dollar

A strong dollar translates to one thing – more purchasing power. Because the dollar is used as the primary international currency of choice and the fact that most Americans own their wealth in dollars, a rise in its value would be a good thing. Consumers’ money would go further with imported goods, since they would be relatively cheaper compared to the country or origin’s currency.

For non-U.S. citizens, a strong dollar would be also be positive thing, since it makes their manufactured goods cheaper for Americans to buy. That means higher demand for products and a boost to the local economy.

In the U.S., imports are far higher than exports. That means Americans buy more goods from overseas than they sell. A strong dollar means goods like televisions and electronics from overseas become cheaper and the standard of living goes up.

The case for a weak U.S. dollar

If the dollar becomes weaker relative to other currencies, U.S. manufacturing would receive a boost, but the purchasing power of consumers when it comes to imported goods would go down. A healthy manufacturing base is generally good for the economy and raises the GDP. Exports would rise and imports would fall as a result.

But because the U.S. export-import industry is so lopsided, a rise in manufacturing wouldn’t be the primary reason a weak dollar would be good. The best result of a weaker dollar comes in the form of a relatively lower foreign debt load. The less the dollar is worth relative to other currencies, the less debt the U.S. has.

Unless America were to borrow money in order to boost domestic investments, higher debt to fund expenses is a bad thing. If the economy can’t expand to meet the higher interest expense, then a devaluation of the dollar might be a way to correct the situation.

There’s a case to be made that the dollar is currently overvalued as it stands. Because it stands as the international currency of choice and a reserve currency, a high dollar value is viewed globally as a positive thing. U.S. debt held by other countries is worth more if the dollar is high, so an atmosphere of artificial inflation is keeping it strong. A future devaluation may be required for the U.S. to keep its status on the global stage.