The Decline in the Dollar Value Paper Example

Introduction

During the year 2017, the U.S dollar experienced a decline in value by close to 10% against its trading partners. Additionally, the dollar has been projected to decline further, considering the new U.S administration's trade policies that tend towards more outright tariffs and less free trades. During the period 2017/2018, the dollar's decline recorded an annual drop for the first time in five years. The last time that an annual decline was registered for the dollar was back in 2013 when it recorded a decline of close to 15%. It is believed that the drop can be associated with the strength realized in the euro. Europe had its greatest economic year in close to a decade, making traders to continually bet that the euros would maintain to soar (Scott A. W., 2015, p. 1).

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The Rise in Exports by US Companies

Significant expansion of worldwide trade has been a controversial trend in the past few decades. The increase has been both regarding the volumes of trade as well as the upsurge in the diversities of products exchanged across nations. The US' large-scale indulgence into foreign markets has proven little relation to declining in upfront costs of entry, rather in the US' increased frequencies of trading abroad by since 1987 (McCallum, 2016, p. 2). From a novel approach, it can be resolved that the development of internet, income growth and trade agreements have significantly influenced the trends of growth of exports instead. It is assumed that if end users desire variety, then access to a considerably more extensive set of products would likely improve their standards of living, leading to desire that impacts more exports. Arguably, the assumption has become one of the most significant means for the profits from trade. The extension of trade, however, does not majorly imply more goods exchanged across nations. The variety of products available also increases, with all the widening of life that the exports entail (McCallum, 2016, p. 2).

Relating weakening Dollar to Rising Exports

For any country, when the exchange rates fall, changes get effected on the relative prices of imports and exports. More often than not, exports tend to become cheaper as imports become more expensive. Exports grow cheaper in other currencies that increase in strength against the primary currency, hence, the demand for products in those countries. In contrast, since imports are bought, they are included as part of the retail price index. Cautionary, if imports increase when the currency weakens, the result could be inflationary (Shriber, 2018).

For the US dollar, the weakening has resulted in high exports due to the theory. Manufacturing is considered the most affected sector in business most affected by exchange rates. Manufacturing companies have realized a huge demand for their products across borders, with some being forced to boost the numbers of their workers to meet the demands across the border. In contrast, the prices of imported raw materials shoot up and hinder importing companies from acquiring the products. Otherwise importing and selling foreign products when the dollar weakens implies that the imported products would demand higher selling prices to make a profit out of them (Craig K. E., 2008). Increasing the selling price due to increased importing price would mean that the consumers dig deeper to purchase the same products that they used to acquire earlier at a cheaper cost. As a result, the economy might suffer inflation at the end.

Companies like grain traders in Kansas credit the weakening dollar with creating favorable for U.S wheat exporters. On the other hand, other companies like the liquor-store retailers blame the weakened dollar for the soaring price of products like the French wine.

Effects on US companies

The fall in US dollar and the subsequent rise in exports have affected US companies in varying ways. Due to the relation between the dollar and other foreign currencies, some companies may attribute their boost in activities to the fall in the value of the dollar while some may blame it on the dollar for reduced activity by the company (Craig K. E., 2008). The merits or demerits that the fall in the value of the US dollar may bring to a company would depend solely on the prices of acquisition of the company's product across the borders which will affect its demand by the target consumers.

Effect on Exporting Companies

An example can be the Behlen manufacturing company based in Nebraska. The company's products are often exported to developing countries. The company ventures in fabricated metal storage containers and sheet-metal joining. The cost of exporting to developing countries relies on the dollar's exchange rate against the country's currencyCITATION Ton05 \p 13 \l 2057 (Toni L, 2005, p. 13). If the exchange rate puts the dollar at a higher value than previous, the country might cut down on their import of the products even if the demand for the product was high. The same can be said for when the value of the dollar falls; the country will be able to import more of the product as it affords more owing to the demand for the product.

The ability of another country to import more of U.S products reflects the same effect on the exporting ability of the company of choice. The more the dollar weakens, the more these countries afford the products from the U.S. as a result, the companies that export their products from the U.S have increased markets for their products. The affordability of U.S products during the weakening of the dollar, however, does not solely depend on the strengthening of the importing company's currency against the dollar. The affordability also depends on the competitiveness of the U.S product against other products in the marketCITATION Ton05 \l 2057 (Toni L, 2005). It means that the U.S products become competitively affordable compared to other foreign made products in the market, a feature that gives them an edge over the rest of the products on the market. Therefore, when the dollar weakens, exporting companies get to export more of their products in more extensive scale than they did before the fall of the dollar. These companies would witness high numbers of exports during these times.

Effect on Multinational companies

For multinational companies refer to companies that do much business in other countries, say a U.S company that does much business in Europe. An example is the McDonald's which has unrivaled brand recognition across the globe. For McDonald's, when the US dollar weakens against the euros, its profits in Europe would be denominated in euros. When the euros get converted back into the weakened dollar, it translates into more dollars for the American companyCITATION Tod18 \l 2057 (Shriber, 2018). The increased dollars for the company gives it a jolt to the bottom line. As a result, the increase in profits would mean better results for the company's shareholders. Therefore, when the dollar weakens, these multinational companies would resort to doing more business outside US more than they do within US soil. Their activities in foreign countries would shoot up to take advantage of the stronger foreign currencies.

Impact on Tourism Companies

With the fall in the value of the dollar, domestic tourism in the US receives a boost. The argument is that the other currencies strengthen against the dollar and it would mean that those other currencies sell higher when converted into US dollars. Therefore, having euros, for example, would translate into more dollars when exchanged. It, therefore, makes the tourism services cheaper for the foreigners. More foreigners affording the services would, therefore, translate into more coming in for the services, thus creating a boom in the industry during the time. Therefore, when the dollar weakens, the tourism companies would register high numbers of tourists visiting from foreign countries whose currencies gain strength against the dollar. A good example is Vail Resorts that ramped up overseas marketing in Europe, Mexico and even Australia when the dollar weakenedCITATION Ton05 \p 14 \l 2057 (Toni L, 2005, p. 14).

Effect on Importing Companies

On average, import prices rise by almost half the amount of a fall in the exchange rate. Generally, a fall in the US dollar translates into reduced imports by companies in the US. The extent to which a fall in the US dollar increases import costs is often referred to as a pass-through. For importing companies like liquor stores in the US, the weakening dollar imposes an increase in the price of importing products from other countries. An example is Berbiglia wines and spirits in Kansas City that used to sell French wines; with the weakening of the dollar, the price of high-end French wines shot up to close to $400CITATION Ton05 \p 14 \l 2057 (Toni L, 2005, p. 14). The effect led to the store to buy less of the French wines instead. The assumption that leads to such decisions, as reducing the imports, comes from consumers' reduced appetite that would come from the increase in selling price of the commodity. As a result, the store would resort to concentrating on buying more mid-priced wines that would offer a good value. Therefore, when the dollar weakens, these companies would register low numbers of activities in importing goods from outside the US.

Conclusion

In conclusion, the weakening of the US dollar proves a boost for exporting, tourism and multinational companies due to the strength that other currencies experience with the fall of the dollar. The fall of the dollar puts US products in foreign markets in a more competitive position compared to other products in the market CITATION Sco15 \l 2057 (Scott A. W., 2015). However, the fall in the dollar gives a poor impression on importing companies since imports become expensive and, therefore, importing more products at the time when the dollar falls would result in inflation instead.

References

BIBLIOGRAPHY \l 2057 Craig K. E. (2008). Weak Dollar, Strong Dollar: Causes and Consequences. Congressional Research Service.

McCallum, W. F. (2016). The Rise of Exporting By U.S. Firms. International Finance Discussion Papers, 1-4.

Scott A. W. (2015). Is a Strong Dollar Better than a Weak Dollar? Page One Economics, 1-3.

Shriber, T. (2018, April 8). How US firms benefit when the dollar falls. Retrieved from Investopedia: https://www.investopedia.com/articles/economics/09/how-us-benefits-when-dollar-falls.asp

Toni L. (2005). Two Sides of The Coin: Pros and Cons of the Falling Dollar. Summer, 12-15. Retrieved from https://www.kansascityfed.org/~/media/files/publicat/ten/pdf/summer2005/currency_exchange.pdf