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    Weak Dollar and The Myth of Cheap American Exports

    03/26/2008

    Question: Isn't a weak dollar really good for exporting American goods?

    Answer: Some people (a few manufacturing lobbyists and some politicians) argue that the cheap dollar improves American exports and that we should not overly worry about the dollar’s decline. That’s wrong. Improved export competitiveness from a weakened currency is not a net gain for the U.S. economy. Of course a weaker dollar helps specific export industries (particularly those that are labor intensive or are based on natural resource extraction), but pricing on most manufacturing inputs is global. So, some American products are more competitive, but the dollar costs of global inputs like feed and silicon wafers and fuel have gone up too.  And every American asset—from dollar-based savings accounts to real estate to our stock market, is declining in value relative to the rest of the world.

    America does need to re-balance its current account deficit, where the main problem is too much borrowing and spending.

    Debasing one’s currency is no path to prosperity. The dynamic involved is a lot like trade protectionism—we all bear the costs in higher prices and a lower standard of living, but some sectors of the economy will benefit significantly in visible ways.

    Of course, greater U.S. exports is a good thing and should be a goal, but we need to look at U.S. tax, tort, and regulatory policy, not at printing more dollars, to gain our competitive edge.