Global Tax Insights
What Impact does a Strong U.S. Dollar Have On Your Business?March 27, 2015
The advantages and disadvantages of a strong dollar on your business.
Lately the news on the U.S. economy has been generally strong on all fronts, with increasing GDP growth projected for 2015, improving employment numbers, and continued low inflation. While gas prices have risen again in the last couple of weeks, no one seems to be expecting to pay $4.00/gallon for gas again anytime soon.
Included among these economic statistics is the continued strength of the U.S. dollar relative to other world currencies. For example, the euro is trading at almost 1:1 to the dollar, a level not seen in many years.
The strong dollar is a reflection, in part, on the strength of the U.S. economy in comparison to the rest of the world, which is still weak. The question is what does a strong dollar mean to your business? The answer to that depends on which part of the economy you play in.
Manufacturers who rely on imported raw materials are benefiting from the current strength of the dollar. That’s because a strong dollar has the effect of lowering inflation and making imported goods cheaper.
Similarly, retailers who import goods from foreign suppliers are also benefiting from the current strength of the dollar, although not so much on goods imported from China, whose currency is pegged to the dollar.
A strong dollar doesn’t benefit everyone
There are companies that don’t fare as well in a strong dollar environment. When the dollar is strong U.S. goods and services become more expensive overseas, as a result, U.S. exports to foreign markets have slowed down.
U.S. multinationals with foreign operations will also suffer from reduced profit margins. Indeed, some earnings estimates for 2015 published by some large publicly traded U.S. multinationals have been scaled back. The same challenges will hold true of privately-owned middle market companies with foreign operations.
Finally, a strong dollar tends to have a negative effect on U.S. tourism as it becomes more expensive for foreign visitors to spend their savings on this country’s attractions.
So the strong dollar provides a mixed bag for U.S. business. There are certainly some winners. But buried in all of the rosy economic indicators there are still plenty of headwinds.