> The Nation - May 16, 2005
>
> The Dollar's Doldrums
> by Doug Henwood
<snip>
> It's possible that the dollar's decline against major foreign currencies
> will boost our exports and discourage imports, thereby diminishing the
> trade deficit. But our trade deficits with Europe, Japan and Canada have
> widened despite large shifts in the exchange rates. Though this is
> counterintuitive, and surprising even to orthodox economists, the reason
> may be that we don't make much that anyone wants.
But isn't the US still the number one exporter in the world in absolute terms? (See article excerpt below, and corresponding WTO stats.) So a lot of people want some things we make.
And if that's true, isn't it more of a puzzle why the large currency falls you mention haven't had any impact?
> Between the February 2002 peak and the December 2004 low in the value of
> the dollar, our currency lost 35 percent of its value against the euro, 22
> percent against the Japanese yen and even 24 percent against the Canadian
> dollar.
If we're the number one exporter in the world, it would seem our real balance problem is that we're the number one importer. Our real competition is against ourselves. Theoretically, even if our exports didn't increase at all, we already have enough to work with that we could fix this problem simply by decreasing our imports. And if markets were operating according to form, currency swings should do that pretty simply, no? If we disregard the rest of the world for a moment, our direct balances with Japan, Canada and Europe should've improved substantially when these large falls in relative currency value translated into large price increases and then to substantial drops in demand for their imports.
And yet they didn't.
Isn't that a big puzzle? Not only theoretically, but also in terms of policy. If nothing improves in the bilateral balances when we drop this much vs. Europe, Japan and Canada, what makes us think we won't get the same result -- i.e., nothing -- when we drop 20% against the Renminbi? And what's causing this nothing, in violation of all the classical laws of price and demand?
Michael
==================
April 15 2005 Financial Times
China overtakes Japan as third largest exporter By Frances Williams in Geneva
China has overtaken Japan as the world's third largest exporter, the World Trade Organisation said yesterday, after a surge in demand for its electronic goods led to a 35 per cent jump in overseas sales.
However, a slackening of the pace of investment by China and the US was likely to moderate economic activity and thus trade growth this year, the WTO said. Germany and the US remained the biggest exporters.
<end excerpt>
WTO 2004 world trade stats:
http://www.wto.org/english/res_e/statis_e/its2004_e/its04_overview_e.pdf
(Note: These charts break out merchandise and service export totals separately, so you need to add them together to get the US as overall number 1.)
Michael