Weaker Dollar No Solution to Joblessness


As I was postig the results of my study of currency exchange rates and trade imbalances – a study which showed that changes in currency exchange rate have no effect on trade – the above-linked article titled “Weaker Dollar Seen as Unlikely to Cure Joblessness” appeared on CNBC. 

The article begins by re-stating the now disproven economic theory:

A weakening currency traditionally helps a country raise its exports and create more jobs for its workers.

The article then goes on to make the case that a falling dollar won’t have this predicted effect.  I can add one more reason – the theory is flawed and not supported by the data.  A weaker dollar will have no effect on the prices of imports, as exporting nations will simply cut costs and subsidize their industries to hold the line on price, assuring that they maintain their share of the U.S. market.

Rising prices for imports certainly would bring manufacturing jobs back to the U.S.  But there’s only one way to make sure they rise sufficiently, and that’s for the U.S. to set the prices.  In other words, the U.S. needs to apply tariffs.  Tariffs must be applied to manufactured products, and the size of the tariffs must be proportional to the population density of the country of origin.  This would result in big tariffs on all products from China, even bigger tariffs on products from Germany, Japan and South Korea, but would leave products from nations like Canada, Australia, Saudi Arabia, Brazil and a host of others completely free of tariffs. 

The only problem we’d have then would be building factories fast enough to keep pace with demand.

One Response to Weaker Dollar No Solution to Joblessness

  1. MikeF says:

    currency valuations are nothing more than a scapegoat/diversion, and rank well toward the bottom of a long list of the considerations utilized for choosing a trading partner in world where the lowest bidder wins.

    Of far greater importance are the mean wage, environmental laws, worker benefits, mean standard of living, work place rules, tax structures, subsidies, and your favorite, the physical ability to trade in parity (population density).

    Even the term “free trade” is somewhat confusing as most people consider free trade as an equitable exchange. Exchanging dollars and jobs for foreign merchandise is not in any way equitable.

    To make matters worse, as these foreign nations gain momentum in this lop sided arrangement, Wall Street begins to invest massive sums of American’s money into the foreign markets, which takes that money out of the loop for domestic commerce.

    At some point (which we have reached), the Fed resorts to quantitative easing by injecting borrowed capital into our domestic economy to replace the continual drain of the dollars and jobs that are lost to building foreign businesses. The dog is now in full pursuit of his tail.

    We are very, very near to the mathematical end of the promise of exponential growth as the cornerstone for the U.S. economy. Be prepared, the changes will come quickly. Anything that can’t go on forever; doesn’t.

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