Investing.com – The US dollar has risen sharply since November’s US presidential election, but these gains are unlikely to limit the impact US customers are likely to face from tariffs, UBS said.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 108.950, but was up about 1.5% over the past month and didn’t stay far. compared to the high in more than two years last week.
The theory is that a stronger dollar will lower U.S. import prices, UBS analysts said in a Jan. 17 note. Those lower prices would partially offset the tax payments that American consumers have to make to the U.S. Treasury Department when purchasing imports.
If the US were to pay for Chinese imports, 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 almost all of its imports in dollars, so this doesn’t happen.
If the dollar strengthens, the dollar price will remain unchanged unless the exporter consciously chooses to reduce the dollar price of goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices because (in dollar terms) the costs in local currency are lower. But the costs in local currency are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, which imports chips (bought in dollars) and exports computers to the US (in dollars), is likely to keep its dollar prices stable – ignoring currency movements,” UBS added.
The US dollar strengthened against the Chinese renminbi in 2016 and 2018/2019, and US import price inflation for products from China showed no noticeable break from previous trends.
The preference seems to have been towards rerouting supply chains as a way to avoid trade taxes.
