In the view of former US President Donald Trump, the strong US dollar is seriously harming US manufacturing, but for US Treasury Secretary Janet Yellen, things are not that simple. Yellen, who has always adhered to the G7's long-standing commitment to letting the market decide exchange rates, said in an interview last week that the impact of the strong US dollar needs to be considered in a broader context. In addition, she played down the role of international trade in weakening employment in US factories.

Yellen said in an interview, "A very strong dollar will suppress exports and promote imports. But there are many things involved. I think you will ask, why is the dollar strengthening?"

After a series of meetings with global financial leaders in Rio de Janeiro, Yellen talked about a hot topic before the November presidential election in an interview last Friday, namely Republican opposition to a strong dollar.

Yellen said that legislation known as "Bidenomics" developed by Biden seeks to support infrastructure, semiconductors, clean energy, and electric vehicles through the Inflation Reduction Act, which also provides corresponding support for manufacturing.

"Our economy is very robust. Consumer and investment spending are robust. The projects we are implementing, such as IRAs and infrastructure, are creating a large number of manufacturing job opportunities."

Yellen said last week that the strength of the US economy in turn attracted foreign capital and raised the value of the US dollar. The Fed's measures to suppress inflation have led to higher rates than other countries, also creating upward pressure. She said at a press conference last Thursday: "We believe this is the way the system should operate."

In contrast, Trump said in an interview, "We have a big currency problem. Nobody wants to buy our products because they are too expensive."

The 2024 Republican presidential candidate also reiterated his claim that some US trading partners keep their currency against the dollar, giving them an advantage. His running mate, Senator JD Vance of Ohio, said that weakening the dollar would give American manufacturers a shot in the arm.

Last month, US industrial output (three-quarters of which is manufacturing) climbed to the highest level since 2018, ending a quarter of unexpected growth in the US economy. The growth in equipment investment reached its strongest level since early 2022, driving business investment to grow at the fastest pace in almost a year.

Yellen said that although employment in US factories has steadily declined in recent decades, the proportion of manufacturing in GDP has remained relatively stable. She said that the decrease in employment is more due to productivity increases than trade.

In addition, a week before the US July employment report was released, Yellen said that the overall labor market looks good. She said: "I think this is a strong and stable labor market without overheating and is currently operating close to the natural unemployment rate." The natural unemployment rate refers to the level of employment that stimulates inflation.

With the Fed gradually pushing inflation towards its 2% target, Yellen said she believes that the risks of inflation and employment are currently balanced.

Editor/ping