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The Indirect Relationship Between the Strength of the US Dollar and Net Exports

Evans Alison and Chris Surran

The value of the US dollar can greatly influence the amount of imports and exports that flow in and out of the United States. A strong US dollar means that one US dollar typically has more value than one unit of a foreign country’s currency. When this is the case, foreign countries don’t tend to purchase as many US goods because they are more expensive relative to their domestic goods. Not only do exports decrease, but imports increase because it becomes cheaper to buy foreign goods. This phenomena causes US GDP to fall. On the other hand, when the US dollar is weak it’s value per unit is lower than the normal value per unit of another country’s currency. When this is the case, the US is less likely to import goods because they are more expensive than domestic goods. Also, a weak US dollar attracts foreign traders because US goods are less expensive than other countries’ goods. In this case, imports should decrease and exports should rise.

Since the Great Recession, the Trade Weighted U.S. Dollar Index, which is calculated against the United State’s main trading partners, has gradually risen. As the value of the dollar has risen, total net exports (exports – imports) has fallen, proving the theory stated above to be true. The strength of the US dollar has deterred foreign countries' interest in importing US goods. What would be a good way to weaken the US dollar to increase net exports and US GDP? Is there a better way to do this without having to weaken the US dollar?

8 thoughts on “The Indirect Relationship Between the Strength of the US Dollar and Net Exports

  1. warej20

    This was a very interesting post. We have seen countries like China make attempts to weaken their currencies. As a result, China is able to maintain a strong position with their global exports. We have discussed in class the possibility of the U.S government decreasing the value of the dollar in the future. I am interested to see if the U.S will follow up on said plans and potentially increase our exports.

  2. longa20

    This is an interesting paradox as if the US has a strong dollar then exports will be lowered. Increased imports has hurt the GDP more than the increase in dollar strength has helped. Eventually, the dollar should weaken if these levels of imports continue and a trade balance should occur. We just have to give it time.

  3. Cade Hornak

    I have seen in other posts the correlation you identify between the weak US dollar and increased the number of exports. A tradeoff is definitely apparent. Obviously we want to export a number of goods but also do not want a weak dollar. I guess that the actual value and number of exports oscillates around the ideal balance, but yes, to find a way to maintain the value of the dollar while increasing exports seems to be the solution if we can find it.

  4. Jimmie Johnson III

    This is such an ironic phenomenon, but it makes a lot of sense. I think its funny because common people probably think a strong U.S dollar is good for the U.S overall, yet in actuality, its not because it lowers GDP. This is probably one of the more difficult part of economics because they have to find a "sweet spot" in terms of the value of the dollar.

  5. bearupk20

    This is a very well written post and is really relevant to the topics we are discussing in class at the end of this term. It is interesting to me how the change in the strength of the dollar can have much wider implications in the economy than just affecting imports and exports. For example, when GDP drops, consumption also decreases which has its own affect on the economy. We will have to see how the changing strength in the US dollar impacts our economy down the road.

  6. clintong20

    This ties in direct hand with we have just learned in class! Very good job delivering this message. So just to be clear, if a weak U.S dollar exists exports increase, and a strong dollar would promote a decrease in exports? If so, I enjoy the this concept is very intuitive and acts as a good frame of reference for the real GDP.

  7. wickhamj20

    This post is awesome because it make me ask myself, is the United States better when the dollar is stronger or weaker relative to international currency. After reading this article and viewing the draft, I would say the United states is at its best when the dollar value is on par with that of foreign countries because it keeps our net exports around 0. When the net exports where around 0 during the mid nineteenth century, the United States experienced unprecedented growth and trade which leaves me to believe the united states benefits most greatly when the dollar is equal to that of the world economy. Great post guys.

  8. Katie Paton

    This blog post does a very good job of explaining how US GDP is affected by the value of the US dollar. I wonder if there has ever been a period when the USD was equivalent to the euro and how that would have affected trade and travel. I wonder if the value of US GDP is less volatile when we trade mostly with the other North American countries due to NAFTA.

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