Is the strengthening of the US dollar a joy or a worry?

Since the beginning of this year, the exchange rate of the US dollar against most global currencies has continued to rise. This trend has brought many benefits to the United States, but it is also accompanied by some negative impacts. The strengthening of the US dollar not only consolidated the dominant position of the US economy, but also helped alleviate inflation by lowering the prices of imported goods. However, the appreciation of the US dollar has also had an impact on some exporters, weakening their competitiveness in overseas markets and posing challenges to the global economy.

Firstly, the strength of the US dollar reflects the relative strength of the US economy. Compared to other slower growing countries, the United States has a more stable economic performance, which has led to a significant rebound in the US dollar exchange rate. In 2022, the US dollar surged to its highest level in nearly 20 years, despite a slight decline last year. In addition, the Federal Reserve's high interest rate policy has also played an important role. In contrast, major trading partners such as Japan and Europe have lower interest rates. Canada has already lowered its interest rates, becoming the first country in the Group of Seven (G7) to do so, and the European Central Bank has also lowered its benchmark interest rate.

Secondly, a major advantage of a strong US dollar is that it reduces import costs. For the United States, where imports outweigh exports, this is of great significance. Not only do millions of consumers buy Chinese made goods at lower prices on platforms such as Wal Mart and Amazon, but American enterprises also benefit greatly because they need to import raw materials and parts for manufacturing and production. The reduction of import costs helps to curb inflation, which is particularly important when inflation remains one of the main challenges facing the US economy.

In addition, the strengthening of the US dollar is also very beneficial for Americans traveling abroad, especially to countries with significant currency depreciation. For example, the Japanese yen has fallen to its lowest point against the US dollar in over 30 years, attracting a large number of American tourists to Japan to enjoy low-priced shopping and travel services. American tourists can also purchase luxury goods and enjoy high-end services at lower prices than in China in Europe and other places.

However, the appreciation of the US dollar has also brought pressure to domestic manufacturers in the United States. For example, Drew Greenblatt owns a company called Marlin Steel Wire Products in Baltimore, mainly exporting products such as baskets and shelves. Due to the appreciation of the US dollar, his company's products lack competitiveness in overseas markets, resulting in an annual loss of over 4 million US dollars in export sales. In addition, the strengthening of the US dollar has also limited his employability.

Not only that, American companies producing products overseas have also been impacted. For multinational companies like Apple that have a large amount of overseas business, a strong US dollar means higher costs when converting local foreign currency into US dollars. The appreciation of the US dollar not only affects American companies, but also causes damage to the global economy. Although foreign countries can export goods to the United States at lower prices, import costs have increased, especially for emerging economies whose debt repayment costs have also increased after borrowing US dollars. These countries need more US dollars to repay their debts, and as the US dollar strengthens, the cost of debt repayment also increases, leading to an increased debt burden.

Overall, the strong US dollar has brought benefits to many Americans, but it has also brought complex economic challenges. On a global scale, currency fluctuations have a profound impact and it is impossible for everyone to be a winner. The appreciation of the US dollar not only promotes the development of the US economy, but also makes the global economic landscape more complex, highlighting the close relationship between monetary policy and the international economic environment.