Upside of a "Weak Dollar" for U.S. Manufacturing

A “weaker dollar” means a U.S. dollar is buying fewer units of foreign currency than before. Many people assume that this “weak” dollar is bad news because of the word “weak”. In reality, this shift makes American goods cheaper abroad and helps factories at home. A depreciation in the dollar can therefore strengthen—rather than diminish—the U.S. economy’s industrial core.

When the dollar falls, U.S. exports become more affordable for overseas customers, which quickly boosts foreign demand for American products. More orders translate into higher factory output and new manufacturing jobs on U.S. soil. Over time, a weak exchange rate can even encourage firms to reshore production, as producing goods abroad loses some of its competitive advantage.

History offers a clear precedent. In 1985, the United States signed the Plaza Accord with several major allies to bring down an unusually strong dollar. Within two years, the currency had dropped roughly one-quarter against the Japanese yen and German mark. The weaker dollar helped shrink America’s trade deficit and gave U.S. manufacturers room to regain lost market share.

China shows how a country can deliberately keep its currency low to supercharge exports. For decades, Beijing has managed the yuan’s value by buying U.S. bonds and selling yuan, thereby limiting yuan appreciation and keeping Chinese goods inexpensive worldwide. This strategy enabled China to become the “factory of the world,” resulting in massive gains in output and employment.

The label “weak” should not cloud the real benefits of a dollar that has an exchange rate that is lower than today’s peaks.