Food and gas prices, as well as interest rates, are not the only increases impacting the US economy. The US dollar index, which is the measured value of the US dollar against select foreign currencies, has shown growth rates that it has not seen in 20 years. The stronger dollar does not lead to positive outcomes for companies that export their goods and services internationally. Rather, the increased strength of the dollar means that the costs of US goods and services are more expensive to consumers around the world that may or may not be able to afford the higher prices. As a result, companies that sell globally may see a decline in their ability to compete and a reduction in their profit margins.
Furthermore, the strong US dollar does not help to narrow the trade deficit. The trade deficit has continued to widen during the first few months of the year.
US Dollar Index at Highest Point in 20 Years
On May 11, 2022 (2 p.m. ET), the US dollar index closed at 103.92 up from 103.68 the morning prior (9 a.m. ET). Also, this measured value is up from 90.14 a year earlier. Just this year alone, the strength of the US dollar has shown an 8.24% increase from January to May 2022, according to MarketWatch. The US dollar index shows the highest numbers in two decades. In May 2002, the index closed at 111.80.
Note: The comparison timeline for the closing index for each is as follows: May 2002; May 11, 2021; and May 11, 2022 (2 p.m. ET).
The US Export Price Index Increase Also Means Decreased US Export Competitiveness
The US export price index has shown a significant increase compared to two decades ago. The US export price index measures the change in prices for non-military goods and services produced in the United States and sold to other parts of the world. The change in prices for the export of goods and services reached a 4.5% growth rate by March 2022 compared to 0.3% in March 2002. Agricultural exports showed a slightly higher price increase than non-agricultural exports. January and February 2022 also showed much higher growth rates at 2.8% and 3.0% respectively.
Source: Bureau of Labor Statistics
Higher Costs of US Exports Hurt Efforts to Reduce the Trade Deficit
Recent US administrations have taken steps to try to reduce the US trade deficit with the world, in which the amount of goods and services that it purchases from other countries and territories (imports) far exceed the amount sold to the global market (exports). From February to March 2022 alone, the trade deficit increased by US$20 billion from US$89.9 billion to US$109.8 billion.
Source: Bureau of Economic Analysis
Whereas US exports are more expensive in the global economy due to the stronger US dollar, importers benefit from the ability to purchase goods and services from overseas at a lower cost. These lower cost imports can benefit US consumers.
Do Not Go It Alone: Export with Persistence, Determination, and GRIIT
Exporters do not have to face these times of uncertainty alone. With the many challenges that exporters have faced in the last couple of years, the Global Research Institute of International Trade hosts a free monthly problem-solving and networking session. These sessions allow for buyers and sellers from around the world to meet, discuss their challenges, identify their needs, collaborate, and develop feasible solutions to continue exporting even during times of uncertainty.
Check out our recent related episode on our YouTube channel. Watch. Listen. Subscribe. Share.