Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the US Dollar Rally Is Reshaping Global Supply Chains
Transcript
- Lucas: Luna, I want to start with a number that's been gnawing at me. The trade-weighted US dollar index hit 120.4 as of mid-June. That's up from about 119.4 just a month earlier. Luna: Right, and the yen is at 161 to the dollar, yuan at 6.77. That's brutal for anyone buying components priced in dollars. Lucas: Exactly. And that's the angle I want to drill into today. We talk a lot about supply chain diversification—moving production out of China to Vietnam, India, Mexico. But there's a hidden second-order effect: the dollar rally is making those new supply chains more expensive to run. Luna: Because a lot of those intermediate goods are still priced in dollars. So a Vietnamese assembler might pay workers in dong, but they buy chips, resins, machine parts in dollars. Lucas: Precisely. I've been looking at a specific case. A mid-sized electronics component maker in Ho Chi Minh City—let's call them VinaTech. They export finished circuit boards to Apple's contract manufacturers. Luna: And I bet their contracts are in dollars. Lucas: Mostly, yes. But their input costs—raw materials like copper, certain chemicals—are also dollar-denominated. So the dollar rally doesn't hurt them on revenue. It hurts them on everything else that's local. Luna: Like electricity, logistics, labor. Those are in dong. And the dong has weakened about 5 percent against the dollar this year. Lucas: So their margin gets squeezed from both sides. The dollar-denominated inputs stay fixed, but the local currency costs rise in dollar terms. Meanwhile, their customers—Apple or Foxconn—are demanding price reductions every quarter. Luna: That's got to be causing some rethinking. I saw a report that Apple is now exploring longer-term fixed-price contracts with key suppliers to lock in dollar rates. Lucas: Which is interesting because it shifts currency risk back onto Apple's balance sheet. They have the scale to hedge that. VinaTech doesn't. Luna: So the dollar rally might actually accelerate a trend we've been tracking: the big buyers—Apple, Samsung, Tesla—taking on more financial risk to protect their supply base. Lucas: Yeah, and that's a structural shift. But there's another dimension. Look at the yen at 161. Japan is a huge supplier of specialty chemicals and precision components. A weak yen makes Japanese exports cheaper for dollar-based buyers. Luna: So suddenly, sourcing from Japan might be cheaper than from Vietnam, where costs are rising in dollar terms. Lucas: Exactly. The whole relative-cost map is redrawing. Vietnamese labor is still cheap, but if the dollar stays strong, the advantage erodes. And that's before you add freight costs. Luna: Freight costs—let's talk about that. The Strait of Hormuz strike on Saturday. Oil prices spiked. If shipping fuel costs go up, it hits every container moving across the Pacific. Lucas: Right. Even if the disruption is short-lived, it adds volatility. And volatility is the enemy of supply chain planning. You can't optimize for cost when every variable is moving. Luna: So what's the play for a multinational right now? Lock in dollar prices, diversify currency exposure, maybe build more inventory. Lucas: And I think you'll see more companies issuing debt in local currencies to match their cost bases. If you're Toyota, you borrow in yen to pay yen costs. But for a company like Apple, with mostly dollar revenues, it's trickier. Luna: You know, this reminds me of something. We've been running this show ad-free from the start because we believe the conversation is more useful without interruption. Lucas: And we want to keep it that way. If these episodes have helped you think about your work or your investments, the best way to support that is a small contribution at buy me a coffee dot com slash fexingo. Luna: It's a simple way to say this matters. No perks, no tiers, just knowing the show stays independent. Lucas: Anyway, back to the dollar—I think the bigger picture is that the rally is exposing a fault line in the 'China plus one' strategy. Luna: Meaning what, exactly? Lucas: The plus-one countries—Vietnam, India, Mexico—they all have weaker currencies. They were chosen for low costs, but the dollar rally inflates those costs. Meanwhile, China has kept the yuan relatively stable against the dollar. Luna: So China might actually become more competitive in dollar terms than the alternatives. Lucas: That's the irony. The yuan is at 6.77, basically flat year-over-year. That makes Chinese exports cheaper relative to Vietnamese or Indian goods, because those currencies have depreciated more. Luna: So the supply chain shift away from China could slow down if the dollar stays strong. Lucas: It could. And that's not just my speculation. Look at the trade data: US imports from Vietnam grew 18 percent in 2025, but early 2026 numbers show that growth has decelerated to single digits. Luna: Meanwhile, imports from China actually ticked up in April. Lucas: Right. The US trade deficit narrowed slightly to about 56 billion in April, but the composition is shifting back toward China. Luna: That's a big deal for the 'decoupling' narrative. Lucas: It is. And it's driven by currency, not just tariffs. So the takeaway for anyone in global business is: watch the dollar index as closely as you watch tariff headlines. Luna: And maybe start thinking about hedging strategies for your supply contracts. Lucas: Absolutely. The companies that survive the next 18 months will be the ones that treat currency risk as a core supply chain variable, not just a finance department problem. Luna: I think that's a solid note to end on. Thanks, Lucas. Lucas: Thanks, Luna.