Why a strong dollar is bad news for America
For the past decade, the running narrative has been that Europe has been a powerhouse on the currency front due to its wise jurisprudence with regards to its economy (a few hiccups with regards to Ireland, Greece and Spain notwithstanding) , and America has been the empire on the precipice of perpetual decline, as it was reflected with the weakened state of the dollar during that period of time.
However, the strong recovery of the USA in the past couple of years has led to a rapid revaluation of the American Dollar, while the continued foundering of many economies in Europe have led to the slow and steady decline of the Euro.
This trend that has recently been kicked into overdrive by the European Central Bank’s decision to finally open the taps of quantitative easing after resisting it for seven long years after the major economic collapse that the world suffered in 2008, furthering the perception that Europe is now firmly in the tank for the foreseeable future.
Many have crowed over Europe’s current predicament even as our fortunes have risen, but there are plenty of reasons to be wary over this turn of events. Here is why we believe that the strong dollar is bad news for America…
Advantage: European manufacturers
While the uninformed observer might think that the deliberate tanking of the Euro by the bank that issues it is a bad thing, the decrease in its value has suddenly made the price of every product made there cheaper than many other places in the developed world.
When this is combined with the strengthening of the American Dollar (which makes many products that are made here at home more expensive), many buyers of our goods are suddenly looking across the pond to see if there are better deals to be had in the Old World, which is all round bad news for smaller operation that don’t possess the cash reserves to ride out tidal shifts in business.
Entire manufacturing companies are moving shop to places like the Balkans to save cash
In today’s globalized world, massive corporations and mom and pop companies alike have the ability to seek out assembly lines anywhere on the planet. The recent dramatic shift in monetary policy has led some savvy entrepreneurs to seek out skilled workers in places like the Balkans and Central Europe, where their services can be had for as little as $1000 per month.
With new operations setting up overseas in this manner, it is only a matter of time before older, more established companies with an eye on expansion will take advantage of this major opportunity in currency arbitrage, leaving ever more American workers in manufacturing out of a job.
New York City, New Orleans and the Grand Canyon just got much pricier
Not for us, mind you. With a strong dollar making many imports cheaper, and the recent upswing in jobs making many Americans more confident, average members of the public won’t be able to perceive the suffering that many in the tourism industry may begin to suffer as soon as this summer.
With the rapid increase in the value of the dollar, and the decline in the euro, many popular tourist attractions that Europeans flock to see each season are now 15 to 20% more expensive over this time last year.
With no more discounts to be had like they were in the dark days of the Great Recession, many Europeans may elect to stick closer to home this year, leaving many tourism operators scrambling to cover the coming shortfall in business in the months ahead.