Can Americans be Persuaded to “Buy American”?

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By Jacob Maslow

map of United States with flagIf there’s any doubt in your mind whether the United States is engaged in a currency war, just look at the strength of the US dollar. While it’s very easy to fall into the trap of thinking that a strong US dollar is good for the US economy, you have to look several feet beyond what’s in front of you. Looking at the big picture, a strong US dollar does more harm for the broader US economy than a weak dollar.

You have to understand that currency valuation is all about comparative strength. The reality on the ground is that the US economy, like it or not, is the strongest among the world’s developed nations. This is not saying much if you don’t have a job and you are on government welfare or receiving government assistance in one form or another. Be that as it may, compared to the European Union and Japan, the United States is doing quite well. Not surprisingly, its currency is strong. That said, the main reason for the US dollar’s strength isn’t the US economy. In fact, a lot of its recent strength is because Europe and Japan have intentionally devalued their currencies.

Ideally, the whole point of these currency devaluation schemes is to buy up private and public bonds so as to stimulate the Japanese and European economies. The practical impact, among other things, is to depress the Euro and the Japanese yen. Not surprisingly, this has made the US dollar strong by comparison. A strong US dollar means US exports are more expensive. This is a competitive disadvantage for American multinational companies. You only need to look the previous quarterly earnings reports of companies like Procter and Gamble (NYSE:PG) to Hewlett-Packard (NYSE:HPQ) to Microsoft (NASDAQ:MSFT) to see the negative practical effects of the strong dollar. If Americans want to help in the current currency war that’s raging all over the world, they have to buy American. The only question is, will they resist the temptation of buying cheaper foreign goods to patronize American-made products?

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