Clinton Warned Not to Rely On Weak Dollar for Exports
SELLING `US' ABROAD
THE Clinton camp has made it clear that the new administration will focus on the United States's export performance and ways to enhance it.
At the same time, a group of analysts is warning the incoming administration: Don't depend on currency fluctuations to boost export strength. New Treasury and trade officials will not find many benefits in the lower dollar, these experts say.
The new economic team will do better to push for greater investments in manufacturing and to improve US industrial productivity, thereby better positioning United States trade over the long term, they add.
Allen Lenz, for example, director for trade and economics at the Chemical Manufacturers Association, says: "There is no reason to expect manufacturing export performance to improve, because we haven't done what's necessary to compete with international rates of investments in research and development and productivity gains. Other nations are outdoing us in terms of pace."
A former senior Commerce Department official who directed trade investment analysis for the government, he obviously is not sanguine about the future of US trade, with or without a weak dollar.
By contrast, the Bush White House has often pointed to the role of the beaten down US currency as a chief cause of robust sales of US goods and services abroad. Administration officials often argue that the lower dollar makes US exports more affordable, hence more desirable, abroad. They also assert that the recent record of US sales in overseas markets has been the greatest contribution to what little growth the US economy has realized, helping restrain recession.
Yet analysts such as Mr. Lenz insist that these are short-lived gains and that the benefits are hardly sustainable in the international economy, where government and business quickly adapt to currency changes.
John Macomber, the outgoing chairman of the US Export-Import Bank, looks at the export picture differently than the White House. His federal agency helps finance US exports. He disagrees that the US export performance improved after 1985 just because of a dollar decline the government planned.
"The days are long gone when a group of gnomes at Treasury control the currency," he says.
"Sure, government can affect it, but the fundamental manipulation comes from the marketplace," Mr. Macomber says. "We could have had a lower dollar between 1982 and 1986, but it didn't matter what the value was because, given the shoddiness of American products, no one wanted them at any price."
Since 1986, he continues, "there has been an incredible rejuvenation in American competitiveness," including gains in productivity and technological advancements.
Also during this period, Macomber says, the value of the dollar happened to be low and helped the sale of US goods abroad. But, he says, now "the dollar could go up and foreign markets would still buy our products such as machine tools, or high-tech goods produced by the advanced communications and computer industries," which have made strides since the mid-1980s.
He adds that "the value of the dollar is critical" when measuring its impact on the success of US commodity exports, such as wheat or oil.
Lenz, however, still worries about a steady stream of new suppliers from newly industrializing markets displacing US producers' goods overseas. Those, combined with traditional suppliers in Europe and Asia, mean that "we have more competitors than ever."
"We've reaped the benefits from the dollar's decline, and now we're back in the productivity and R&D race," Lenz says. He concurs with many forecasters who expect the merchandise trade deficit to increase to $100 billion next year.
While commodities fared better with the lower dollar than did other US output, the prospect for gains in commodity exports is low, other analysts agree.
"The burden falls on manufacture trade. Our chemical industry exports more than all of agriculture does as a whole," Lenz says. "We are the largest export sector in the US."
But when US products become more price competitive, foreign governments and businesses are ever-ready to act in their self-interest. In order to maintain their share of the competitive US market, European exporters have shaved their profits in recent years to keep their own prices low. Domestically, they have erected barriers to US imports that they see as a threat to their own domestic production.
And companies both here and abroad have long learned to hedge against the volatility of currency markets. In order to protect themselves against the falling value of the dollar, US multinationals purchase financial instruments, such as "forwards" or "futures," which increase in value as the dollar drops. Such measures help companies blunt the impact of losses or simply avoid them.