Falling Dollar No Help for Manufacturing

http://www.reuters.com/article/hotStocksNews/idUSN1521819120080515

http://www.reuters.com/article/oilRpt/idUSN1451637520080515

Once again, the New York Fed’s “Empire State Manufacturing” survey of business conditions has found manufacturing in decline.  Also released today was the Philadelphia Fed Survey.  The results were the same there – declines in manufacturing.  In addition, the Fed released its monthly national survey of industrial production and found that, once again, industrial prduction declined across the nation.

Economists predicted that the dramatic decline in the dollar was good news for manufacturing, supposedly making our exports cheaper and imports more expensive.  They said the trade deficit would fall as a result.  Well, it hasn’t fallen one bit from its monthly range and manufacturing has declined, not strengthened.  What’s going on here?

The falling dollar is having no impact because it has nothing to do with the root cause of the trade deficit – the gross disparity in population density and per capita consumption between the U.S. and so many of our grossly overpopulated trading “partners.”  Does anyone seriously think that foreign exporters will just sit on their hands and watch their share of the U.S. market decline just because of currency valuation?  Of course not!  They’ll simply cut prices and costs to maintain their market share. 

The only way to bring down the trade deficit is for the U.S. to make overpopulated nations, with no market to offer in return for access to ours, pay a penalty for bringing nothing to the trading table.  By that, I mean tariffs that are indexed to their population densities.  Imagine a 50% tariff on Japanese and Korean imports.  Would you pay $30,000 for a Toyota Camry instead of $20,000 for a Chevy Malibu?  Some would, but not many.  Yes, I know that the Camry is built in the U.S., but it’s loaded with Japanese content.  The tariffs on those imported parts would still drive the cost of the finished car high enough to send customers flocking to Big-Three show rooms.

The result would be an explosion in the domestic auto industry, with a corresponding jump in the demand for labor.  The Big Three would add shifts, restart idled plants and build new ones.  Soon, the same thing would be happening in other industries as well.  The demand for labor would begin to restore wages and benefits, something we haven’t witnessed for three decades.  Wages would climb faster than prices.  It’d be pure oxygen for American manufacturing. 

Let’s stop deluding ourselves that the falling dollar or anything short of imposing tariffs is going to make one iota of difference in eliminating the trade deficit or resuscitating our economy.  Let’s start looking at the world with our eyes wide open. 

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