Why are American factories hurting? The rising U.S. dollar.
“That’s the primary reason that manufacturing has literally gone almost nowhere for the past two years,” said Michael Montgomery, an economist at IHS Markit.
The dollar got a boost after Donald Trump won the presidential election. Montgomery said it started rising during the Greek debt crisis. Now traders are betting that Trump’s plans to increase infrastructure spending will give the economy a shot in the arm and give the dollar a boost. But why would that be bad for manufacturers?
“Things get more expensive because the dollar is stronger,” said Harold Sirkin, a partner of The Boston Consulting Group.
U.S. products are priced in dollars. So, a winemaker in France has to pony up more euros to buy an American-made tractor. U.S. manufacturers lose business.
“When your business is down you really can’t hire,” said Sirkin.
So, all of Trump’s promised manufacturing jobs will be harder to create. But wait! There’s more.
“Don’t forget – the strong dollar doesn’t just reduce exports, it increases imports,” said Linda Lim, an economist at the University of Michigan.
Lim said cheap imports make it hard for U.S. manufacturers to sell here, too. Remember that winemaker in France? The one buying a tractor? When he exports his wine to the U.S., he has an advantage because it’s priced in his cheaper euros.
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