Depreciating the Dollar to Grow the Manufacturing Sector

Apollo Chief Economist

The manufacturing sector in the US has been in steady decline for the past 80 years, and manufacturing jobs today only make up 8% of total US employment. See chart below.

There are three reasons why manufacturing is playing a smaller role: automation, global trade, and significant growth in services, such as the technology sector.

If the dollar falls in value, US exports become cheaper, which encourages foreigners to buy more US manufacturing goods.

But another reason why the rest of the world buys US products is because US products are superior relative to products from other countries, particularly in the services sector, where the US is market-leading with Microsoft, Meta, AWS, Netflix, large language models, etc.

By depreciating the dollar and starting a trade war about goods, which make up less than 10% of US GDP, the US is risking that the rest of the world will slow their imports of the 80% of the US economy that is services, such as iPhones, Windows, Facebook, and large language models.

In addition, a depreciating dollar puts upward pressure on inflation and the term premium, which can create new macroeconomic challenges.

The bottom line is that depreciating the dollar comes with some risks. There is no free lunch in macroeconomics.

Manufacturing employment as a share of total employment has been declining steadily for 80 years
Sources: BLS, Macrobond, Apollo Chief Economist

Download high-res chart

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