First, let me say that ALL economics is theoretic since it’s a social science and thus not really provable or disprovable when taking into account all the other variables.
My thought today is that a weak dollar is supposed to help companies within the US export more since it’s more profitable. I was taking my daily shower and just standing there. A weak dollar is wherein 2 of our dollars might be worth 1 of say, WWD (worldwide dollar). Now say that this product sells over there for 1 WWD, so that’s $2. Obviously, this generates them more profit than if they just sold it here for $1.
But the question comes into play is that if we have a strong dollar, where $1 = 2 WWD, wouldn’t that lower the cost of production relative to selling price? Say for instance, they import all the needed materials they’re paying less because the strength of the dollar. Now, if the salaries remain the same, they’re really losing no more than before in the cost of production unless you convert it to WWD first. But for the average person, they’re getting paid $10 to make one regardless. Yet if it stays strong for a lengthy period of time you, I believe, would be able to buy more and thus have the deflation effect. So this is the other side of the coin; if salaries continue to increase in the rest of the world, where WWD is used but remain the same here, you would in effect be lowering the salaries of those paid to produce said item.
Just as an example, assume that $1 = 2 WWD. The average hourly salary is $10 or 10 WWD, depending on where you live. The cost to import the materials is, we’ll say, $1 and it needs an hour of wages. It works out to costing either 12 WWD or $11. Until the salaries even out, then it works out to 22 WWD or $11. So the same.
Now, the opposite problem. 1 WWD = $2. Same hourly salary, and the goods now cost 2 WWD to import, so $4. The cost to produce it over there is 12 WWD whereas here it’s $14. Once again, until the salaries even out, then it’s the same.
And I think I just made 4 different arguments in this post. So have fun trying to decide for yourself which is right.