Falling Dollar to Help Trade Imbalance? Wrong!

Economists tell us that a falling dollar will help to correct our trade deficit by making imports more expensive (restoring the profit potential to manufacture domestically) and by making our exports less expensive for foreign customers.  It seems to make sense.  But I have maintained all along that it won’t work.  What economists fail to recognize is that foreign trade, especially in manufactured products, is less about sourcing products where they are made most cost effectively than it is about a global war for employment.  Our foreign competitors will never cede their U.S. market share just because of changes in the exchange rate.  They’ll simply do whatever is necessary to cut prices. 

Solid evidence of that was released by the U.S. Bureau of Labor Statistics this morning when it made its monthly release of changes in import and export prices.  In spite of the dramatic decline of the dollar vs. virtually every other currency on earth, our export prices rose by 0.5% last month while import prices declined 1.1%.  Not convinced by month-to-month swings?  OK, compared to year-ago prices, export prices declined by 3.6%, but import prices declined by more than three times that amount, or by 12.5%! 

Recently, nearly every major Japanese company has reported big losses, blaming the strengthening yen.  In the last couple of days, Daimler (maker of Mercedes Benz) has also reported a loss.  This means that these companies have been selling products at a loss in the U.S. – in other words, “dumping” – a practice expressly forbidden by the World Trade Organization.  But they’re doing it anyway in order to prop up market share, knowing that it’ll take years for the U.S. to catch on, register a complaint with the WTO, and for the WTO to act after a lengthy appeals process.  By then, they’ll have found another way to keep their prices low and maintain market share. 

There’s been lots of talk recently about the potential for a trade war.  I have news for you:  we’ve been in a trade war for decades and we’re losing badly because we’re not even putting up a fight.  We’re the global doormat.  When it comes to competing in a trade war, we’re about as effective as France is in fighting a real war. 

The time has come for America to stand up for itself again and address the enormous imbalances in trade in manufactured goods that we have with the badly overpopulated nations of the world – China, Japan, Germany, Korea, Mexico and others – who prey on our market and rob of us jobs to sustain their badly bloated labor forces.

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