With the dollar strengthening rapidly relative to other currencies, in part as a result of Donald Trump’s election victory, consider this irony: The price of imports will fall, making them more attractive to consumers—just as the incoming president prepares to clamp down on imports.
Hopefully, he’ll put aside his protectionist instincts and be persuaded by his advisors to enable American consumers to enjoy a few bargains. Otherwise, we’ll be experiencing the downside of a strong dollar without enjoying the upside.
The downside is that a strong dollar makes American goods more costly abroad. The weak dollar that prevailed through most of the Obama presidency enabled American companies to compete abroad, even though corporate America is taxed at the highest rate in the industrialized world.
But add on a stronger dollar and American exports will drop, increasing our trade deficit, reducing corporate profits and making it more difficult for the economy to grow. That would cause a drop in employment and American workers would, yet again, have to wait to see their salaries increase. (more…)