This is a continuation from Part 1
Previously on our blog, we’ve begun to take a look at how the falling euro could actually come to have a negative effect on the U.S. economy. This is because a currency rising in strength isn’t necessarily good or bad, no matter what one might think at face value. A whole swath of factors must be taken into account. In the end, currencies will often fluctuate in value in a sort of give-and-take system of market adjustment. However, in the meantime we will explore a couple more ways that the falling euro and rising dollar might affect the economy…
The phenomenon of how foreign manufacturers use a stronger U.S. dollar to increase their prices for a profit boost is especially true for European countries, this is because they produce many, many luxury goods that are exported to the United States, rather than mass-produced goods like the ones exported from Asia. It’s much easier to hold the price on luxury goods, as people are already planning to spend higher amounts of their currency to purchase them. As all of the luxury manufacturers continue to do this, it will come to affect the other industries between Europe and the U.S., since the luxury products have already set a precedent for price relations between the two regions. Because of this, the stronger dollar might actually cause European prices to increase for the American public. There is historical backing for this, as it happened many times with foreign car manufacturers, such as Porsche and Volkswagen.
Dollar could hurt U.S. investment
Another way that the dollar’s strength works against the United States is that it can make it harder for American companies to be competitive against foreign competitors, abroad. This brings us back to theory, but one that is more solid with real world backing. As the dollar’s value increases, so too must the prices for U.S. goods in foreign markets. This means that less U.S. goods will be purchased around the world, thus hurting investors in the United States. This can have a negative impact for manufacturing industries in the country, which will cause jobs to be sent overseas, unless countermeasures are taken. At the same time, this sort of economic strength has an adverse affect on the tourism industry, as fewer travelers from Europe and other places will opt to come to the United States when their money won’t go as far. Businesses in these industries also have to deal with the fact that U.S. travelers are more likely to leave the country for tourist ventures, as their money is stronger in other markets.