How a strong dollar can backfire on American consumers, businessess

How a strong dollar can backfire on American consumers, businessess

In 2022, the dollar reached its highest level since the early 2000s, after experiencing a decade of sustained growth. The dollar has appreciated against most major currencies in 2024, including the yen, euro and yuan.

“I actually don’t like the word strength because that has positive connotations,” said Matthew C. Klein, co-author of “Trade Wars Are Class Wars” and founder of The Overshoot, a subscription research service on the global economy. “Really what we just mean is that it’s more expensive relative to where it was before. So dollars can buy more foreign things than … before, and that’s obviously good if you want to buy those things.”

The dollar’s value depends on economic conditions in the U.S. and around the world, so it’s difficult to label a strong dollar as simply good or bad overall.

“The power projection of the United States is greater when the U.S. dollar is strong, and as the U.S. dollar becomes weaker, it’s less capable of projecting political power,” said Harold James, professor of history and international affairs at Princeton University.

A strong dollar can also have its downsides. It’s possible that demand for U.S. goods abroad would decrease if international consumers can’t afford to buy those goods. American workers could then be negatively impacted. 

“The people who benefit from the strong dollar are usually different people than would benefit from the weak dollar,” James said.

As a result of that negative feedback loop, the U.S. president doesn’t always want a strong dollar. For example, former President Donald Trump expressed concern prior to Covid lockdowns about the impact a strong dollar was having on U.S. exports. He attributed the rise in the dollar’s valuation to the Federal Reserve’s approach to monetary policy.

“We’ve been hurt in my opinion very badly by our own Federal Reserve who has also created a very strong dollar that’s something nice about a strong dollar, but it makes it much harder to do business outside of this country,” Trump said at a February 2020 press conference, about one month after the Fed decided to keep rates unchanged.

Watch the video above to learn more about the multifaceted impacts of a strong dollar on American consumers and workers, the factors driving its appreciation, and how presidential policies and actions influence its value.

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