Revenge Travel and the Dollar’s Strength: How American Tourism is Boosting GDP, but at a Cost

As restrictions on travel eased, Americans embraced “revenge travel” with enthusiasm. The recent increase in the dollar’s value has made traveling even more appealing for many. With concerns about over-tourism in some European cities, a large number of Americans are taking trips to the continent. The Federal Reserve’s decision to raise interest rates and maintain them at higher levels has strengthened the dollar compared to other currencies, which are expected to see rate cuts by other central banks.

The U.S. Dollar Index measures the dollar against various currencies and has increased by around 4% since the beginning of the year and 5.6% since its low in July 2023, giving Americans greater purchasing power abroad, making international vacations more affordable. However, this increase in American tourism overseas is considered an imported service when calculating GDP, which experienced lackluster growth in the first quarter due to a wider trade deficit.

According to Wells Fargo, the share of service imports related to travel has reached its highest level since 2005, when the dollar was also robust. Analysts at Wells Fargo suggest that as American travel abroad grows while the trade deficit increases, net exports could have a substantial impact on real GDP growth. Data from Wells Fargo shows that during a period of dollar strength from 2014 to 2015, travel imports by Americans increased by approximately $1.1 billion while travel exports by foreigners visiting the U.S remained relatively stable. While $1.1 billion of travel services may seem like a small portion of the total trade balance, it represents a 1