Weekly Updates
Weekly Updates
- Will dollar strength limit the trade tax damage to US consumers? The theory is that a stronger dollar lowers US import prices. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
- If the US paid renminbi for the imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen. If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold.
- An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs. A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves.
- The US dollar strengthened against China’s renminbi in 2016 and 2018/19. US import price inflation for products from China showed no noticeable break with earlier trends. The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
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