If you’re an economic nerd like me, you definitely have been following the World Economic Forum in Davos, Switzerland this week. This is the most brilliant time of the year as 2,500 of the world’s top business leaders, international politicians, economists, celebrities, and journalists meet for four day to discuss the most pressing issues. The World Economic Forum’s mission is “committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas.”
The World Economic Forum invited two colorful, special guests to speak: United States President Donald Trump and his sidekick US Secretary of the Treasury Steven Mnuchin. Like usual, Trump said some questionable comments, such as the US economy is asserting to have a weaker US Dollar. Alright, yeah this wasn’t as controversial as him calling other nations “shith*les” or claiming the United States has a bigger nuke button than North Korea.
However, Trump is sending mixed signals to the world by promoting two contradicting economic policies. The Trump Administration has delivered on their America First agenda, which promotes American businesses and tariffs on foreign products. As a result, the US would be shying away from trade as domestic goods are cheaper. The overall goal of America First was to boost growth in the economy. However, a weak US Dollar would make imports more expensive as the purchasing power decreases. No nation in today’s modern world is self sustainable. Therefore, even if the US encourages more manufacturing and production, they would still be required import resources that produce the goods. Therefore, American final goods would actually be more expensive.
Yeah, this is very confusing. This is basically your girlfriend telling you she wants nothing for her birthday, but she keeps showing you pictures and magazines of the latest clothes dropping from Chanel and Victoria Beckham.
If you’re lost in topic, do not worry I am going to explain the fundamentals behind weak currencies.
The meaning of a weak dollar is the US Dollar’s value is decreasing relative to other foreign currencies. Consequently, the purchasing power falls, which makes consumers pay more for imported products and traveling. However, it allows the American economy to compete in the global markets. The weaker dollar allows American exports to be cheaper, so more nations would buy our goods and services. Additionally, tourism would rack in more revenue as more foreigners take more vacations in the United States as it is less expensive.
All in all, if your family is planning a trip, you better postpone it or pay a boat loads of more money.