Investing.com – The U.S. dollar has gained strongly since the U.S. presidential election in November, but those gains are unlikely to limit the potential impact for buyers the US from tariffs, according to UBS.
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 it was about 1.5% higher last month, and it didn't stay long. from the more than two-year high seen last week.
The theory is that a stronger dollar is lowering US import prices, analysts at UBS said in a note dated January 17. These low prices would partially offset the tax payments that US consumers must make to the US Treasury when they buy imports.
If the US paid for China's 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 imports in dollars, so this does not happen.
If the dollar strengthens, the price of the dollar is unchanged, unless the exporter consciously chooses to reduce the dollar price of the goods sold, said UBS.
Exports to the US may deliberately lower dollar prices, as local currency costs (in terms of dollars) are lower. But local currency costs are only a fraction of a manufacturer's costs.
“Chinese electronics manufacturers, including chips (purchased in dollars) and computer exports to the US (in dollars), may keep their dollar prices stable – without 'avoid cash transfers,' said UBS.
The US dollar strengthened against China's retaliatory measures in 2016 and 2018/19, and US import price inflation for products from China showed no apparent break with earlier trends.
The choice seems to be to reroute supply chains as a way to avoid transaction fees.
