The weaker dollar is helping corporate earnings, which is good for U.S. investors. Multinationals’ earnings will rise because they have substantial overseas sales, which are paid for in foreign currencies. Converting these foreign currencies back to dollars enhances the multinationals’ dollar earnings.

For the S&P 500, the first two quarters of 2017 have enjoyed the strongest profit growth since 2001 — 15 percent in the first quarter and 12 percent in second. Morgan Stanley projects that this should boost S&P 500 companies’ earnings by an additional 6.5 percent in 2018.

Since reaching a 15-year high in January, the dollar has declined 8 percent. On July 1, Mike Wilson, Morgan Stanley’s chief U.S. economist, predicted that the dollar probably will weaken further, possibly declining for a total of 13 percent against other major currencies for all of 2017.

What does it mean to have a stronger dollar? A strong dollar means our currency allows us to purchase more of a foreign country’s goods. By contrast, a weak dollar forces us to buy less because overseas goods and services cost more.

All things being equal, a weak dollar improves the U.S. balance of payments by making our manufactured goods cheaper. It should lower our trade deficits with China, Japan and Germany. In 2016, we had a $347 billion deficit with China, $69 billion with Japan, and $65 billion with Germany.

Why has the dollar weakened? In large part the weakness has resulted from the improved economic performance of the rest of the world, particularly Europe and Japan. Both of these regions have enjoyed strong growth. The dysfunction in Washington is also hurting the dollar.

What is the downside of a weak dollar? A weak currency lowers the purchasing power of the dollar globally. This makes it more expensive for U.S. residents to travel overseas and it elevates the price of imported goods.

What is the upside of a weak dollar? A weak dollar stimulates U.S. economic growth and therefore mitigates the downside of the Federal Reserve’s moves to raise interest rates. A weak dollar makes U.S. exports cheaper abroad and helps our manufacturing sector. In June, exports were up 7 percent compared with last year.

Chad Moutray, chief economist for the National Association of Manufacturers, wrote in his company’s publication that the weak dollar had helped the global economy. The International Monetary Fund predicts economic growth globally of 3.5 percent in 2017 and 3.6 in 2018.

Surprisingly, despite the increased cost of imports, our inflation rate remains below the Fed’s target of 2 percent. Import prices in June were up 1.5 percent, year-over-year, reversing declines in 2015 and 2016.

In economics, we try to determine “if all things are equal, what is the impact of a specific occurrence?”

On the negative side, a weak dollar will boost the cost of imports and inflame inflation, possibly above the Fed’s 2 percent target.

On the positive side, it should reduce our trade deficits. President Donald Trump has spoken repeatedly of his concerns that America’s trade imbalances are not sustainable and hurt American workers.

Lastly, from a global perspective, we need to remember that the dollar’s weakness is primarily a function of strong global growth. We benefit financially when other developed countries’ economies are robust.

Japan has racked up its longest growth streak in over a decade. The Eurozone’s economy has now posted 14 consecutive quarters of growth and its unemployment rate has returned to single digits.

To the extent that our global partners are doing well, they can afford to purchase more U.S. products.

Despite our political dysfunction, the prospect of higher corporate earnings provides comfort to investors who worry about the relatively high cost of our S&P 500 companies’ shares.

Originally published in the Sarasota Herald-Tribune