Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Strong Dollar Is Reshaping Global Corporate Strategy
Transcript
- Lucas: So it's late June 2026, and the US dollar is absolutely crushing it — the trade-weighted index hit 120.4 as of last week. That's up from 119.4 just a couple weeks ago, and we're talking about levels we haven't seen in decades. Luna: And meanwhile, emerging market ETFs are getting hammered. EEM is down nearly 6% in five days, and South Korea's EWY dropped almost 10%. Lucas: Right. So today I want to step back from the noise and ask a specific question: how does a super-strong dollar actually reshape the strategy of a multinational corporation? Not in theory — I want to pick one concrete example. Luna: Which one are you thinking? Lucas: Let's take a South Korean memory chip maker. These companies manufacture in Korea, sell globally, and a huge chunk of their revenue comes in US dollars — data center clients, smartphone makers, all pay in dollars. But their costs — labor, electricity, facility maintenance — are in Korean won. So the dollar strengthens, and suddenly their dollar revenue converts to more won. That should be a tailwind, right? Luna: Except they also have dollar-denominated debt. I've seen reports that some of these firms loaded up on cheap dollar bonds in 2024 and 2025. Now the won has weakened, so the cost of servicing that debt just went up. Lucas: Exactly. The won has lost about 8% against the dollar just this quarter. So on one hand, your revenue is worth more in local currency — which is good. But your debt payments are also larger in won terms — which is bad. And if your customers are struggling because they're also facing dollar pressure, they may delay orders. So the net effect is ambiguous. Luna: But there's another layer: the strong dollar acts like a tariff on US exports. If you're a us based manufacturer selling overseas, your goods just got 10-15% more expensive for foreign buyers overnight. Lucas: That's exactly the point I want to drill into. Let's say you're a US industrial equipment company — Caterpillar, for argument's sake. You sell bulldozers in emerging markets. With the dollar at 120 on the trade-weighted index, your bulldozer costs a Brazilian buyer 15% more than it did a year ago. How do you respond? You can't just lower prices because your margins are already thin. So you might shift production to a lower-cost country — or you might lose market share to a Chinese competitor whose currency is pegged to a weaker yuan. Luna: And the yuan is at 6.77 per dollar, which is near its weakest level. So Chinese exporters are getting a double benefit: cheap currency and a strong dollar making everyone else more expensive. Lucas: I saw that CNBC headline — 'If you think China needs to dethrone U.S. dollar, you don't understand how it is waging global currency war.' The argument is that China doesn't want to replace the dollar — they want a weak yuan to boost exports. And the strong dollar is doing that work for them. Luna: So the dollar rally is essentially subsidizing Chinese exports. Lucas: It is. And that puts multinationals in a bind. You can't control the exchange rate. So what do you do? I think there are three strategies we're seeing play out. First: natural hedging — if you sell in dollars, try to also source inputs in dollars. Second: geographic diversification — shift production to countries with currencies that move with the dollar, like maybe Mexico or some Southeast Asian nations. Third: financial hedging — use forwards, options, to lock in rates. Luna: But hedging costs money. And for smaller firms, it's not always viable. Lucas: Right. That's why we're seeing some companies simply pass the cost through. If you're a European luxury goods maker, your handbags just got more expensive in yen — but wealthy Japanese buyers might not care. But if you're a commodity exporter — say a Brazilian miner — your iron ore is priced in dollars, so you actually benefit from a stronger dollar because your costs are in a weaker real. Luna: So the strong dollar is a huge asymmetric shock. Some industries win, some lose. And the pain is concentrated in emerging markets with dollar debt. Lucas: Which brings us to the macro picture. The US trade deficit just narrowed slightly — to about $55.9 billion in April, down from $56.6 billion. That's partly because a strong dollar makes imports cheaper, but it also makes exports harder. So the deficit narrowing is more about lower import volumes than a surge in exports. Luna: And the current account deficit is huge — over $226 billion. That's not sustainable forever. Eventually, the dollar has to weaken to rebalance, right? Lucas: Conventional economics says yes. But we've been waiting for that 'eventually' for years. The dollar strength is being driven by higher US interest rates, geopolitical turmoil — you see the headlines about Iran and Venezuela — and the fact that the US economy is still outperforming. So the dollar might stay strong longer than people expect. Luna: But at 120.4, isn't there a risk of overshooting? If the dollar gets too strong, it could trigger a financial crisis in some emerging market that then ricochets back to the US. Lucas: That's the worry. South Korea's market dropped nearly 10% in a week — that's not just noise. If a major Korean chaebol has a debt problem, it could spread. So the Fed has to be careful. They can't just keep rates high indefinitely without consequences. Luna: Let's talk about one specific consequence: the yen carry trade. The yen is at 161 per dollar, which is extremely weak. For years, investors borrowed yen at low rates and bought higher-yielding assets elsewhere. That trade is now unraveling because the yen is so weak that the cost of hedging has soared. Lucas: We did an episode on that a few weeks ago. But it's a good reminder that the strong dollar is not just about trade — it's about capital flows. When the dollar strengthens, it sucks liquidity out of global markets. Emerging market stocks fall, bonds fall, and everyone rushes to buy US assets. That reinforces the dollar strength. It's a self-reinforcing cycle. Luna: Until it isn't. I think the key question for our listeners — many of whom work in international business — is: what should a CFO be doing right now? Lucas: I'd say three things. One: stress-test your balance sheet for a dollar index at 125 or even 130. Two: if you have dollar-denominated debt and your revenue is in a weak currency, consider hedging or refinancing into local currency. Three: think about supply chain location. If the dollar stays strong, manufacturing in the US for export becomes less competitive — so maybe you move production closer to your end markets. Luna: And if I could add a fourth: don't assume the dollar will weaken soon. Plan for persistence. Lucas: Exactly. So let's wrap with a thought. The dollar's dominance is often taken for granted, but it's not a law of nature. If the US fiscal deficit continues to widen and the current account stays deeply negative, at some point confidence could waver. For now, though, the strong dollar is the reality — and it's reshaping supply chains, debt markets, and competitive dynamics in real time. Luna: If this conversation has been useful in thinking about your own business or investments, it's worth knowing that these episodes stay ad-free thanks to listener support. People can help keep it going at buy me a coffee dot com slash fexingo. Lucas: Yeah, that's appreciated. And it means we can keep digging into specific, practical angles like this one. So — as the dollar keeps marching higher, the real question is: who adapts fastest? That's what we'll be following.