Dollar’s Decline Will Spur Higher Prices for Imports

West Germans are paying less for almonds grown at Fred Starrh’s farm in Shafter, Calif. The price is down because the value of the U.S. dollar has fallen. As a result, Starrh estimates that his overall almond sales are up 10% to 15%.

But American buyers of videocassette recorders and television sets made by Sony and other Japanese electronics firms will not be so lucky. They will pay more next year, also because the dollar has fallen.

The declining U.S. dollar--which has lost about 22% of its value since peaking last February--is slowly beginning to affect trade between the United States and its foreign trading partners. Japanese, European and other overseas companies are planning price increases in products ranging from television sets to shoes to machine tools.

Meanwhile, prices of U.S. farm products, logs and other exports are becoming cheaper for foreigners. With the lower greenback, some foreign firms are considering whether to accelerate plans for shifting more production to their U.S. plants.

Such trends, if continued, would bring obvious benefits to American workers and companies through increased jobs or higher corporate profits. Profits of some U.S. firms with extensive international operations, such as Pan American World Airways, are already benefiting as their overseas profits, earned in foreign currency, become worth more in dollars.

But the news will not be all good. For consumers, higher prices on imported goods could end long-standing bargains on such items as VCRs and microwave ovens. American products with high content of foreign parts, such as computers, also could rise in price.

Overseas travel bargains for Americans also will become more rare as the dollar’s buying power overseas is diminished and hotels and meals become more expensive.

“When the dollar changes, there are an equal number of winners and losers,” said Richard W. Rahn, chief economist for the U.S. Chamber of Commerce. “People who think it’s a panacea to have a drop in the dollar are dead wrong.”

Some industries, such as autos and steel, are not expected to feel any benefit from the falling dollar for some time. Japanese auto manufacturers, for example, so far have been reluctant to announce price hikes partly out of fear of losing market share to Detroit’s offerings.

Other U.S. businesses, such as those in heavy machinery and agriculture, are in such a severe slump that the declining dollar will provide only partial relief.

Construction equipment manufacturers and farmers will be hard pressed to regain shares of foreign and domestic markets lost to foreign competitors, who used their price advantages during the era of the strong dollar to gain footholds in markets traditionally dominated by Americans.

Excess Inventories Hurt

Other industries, such as semiconductors, face so much slack demand or excess inventories that it will take a sharp upturn in orders to bring about better times.

And some industries, such as steel, textiles and paper, face competition from foreign firms that are heavily subsidized by their governments or that enjoy substantially lower labor costs--factors that the falling dollar can only partially offset, economists say.

Even if the dollar falls to its low levels of 1980, “we’re not going to recover all we lost because world markets have fundamentally changed,” said Robert A. Gough, senior economist at Data Resources, a leading economic research firm. He notes that workers in other countries have increased their productivity faster than U.S. workers in recent years, while average manufacturing wage rates in such nations as South Korea and Brazil are nearly one-tenth those of American workers.

Accordingly, economists said, the falling dollar at least for now is having little or no effect on reducing the bloated U.S. trade deficit, which is expected to total $150 billion this year, up from $123.3 billion in 1984. Many economists even suggest that the dollar’s decline initially may help to increase the deficit, as prices of imported goods rise faster than Americans reduce their purchases of them.

Links to Foreign Economies

The trade deficit also will not fall appreciably until the economies of Europe and other foreign nations improve so they can purchase more American goods, economists say.

“The dollar will have to go down another 15% to 25% to have things really turn around,” said Ago Ambre, senior economist for the U.S. Commerce Department. He predicted that the dollar will not begin to affect the U.S. trade deficit until the middle of next year.

The decline in the U.S. currency since February was measured by the Federal Reserve Board against a trade-weighted basket of 10 foreign currencies. About 8 percentage points of the 22% decline have come since Sept. 22, when the United States and its four leading trading allies announced that they would intervene in foreign currency markets in a concerted effort to lower the dollar and ease protectionist pressures in Congress.

Some goods, particularly farm products, logs and other raw commodities, began feeling the effects of the dollar’s lower value almost immediately in the form of higher prices for foreign goods and lower prices for U.S. products sold overseas.

U.S. Soybean Prices Cut

Prices of soybeans, measured in Japanese yen, are about one-third lower now than they were in February. As a result, sales to Japan are up 57% from a year ago at this time, said Tommy Eschleman, economist for the American Soybean Assn., although he attributed part of the sales gain to bumper crops, which has depressed prices even further.

Weyerhaeuser Co., the forest-products giant, has been able to raise its prices on logs sold to Japan by 10% to 15%, chief economist Lynn O. Michaelis said. But because the dollar has fallen about 30% against the yen since February, the Japanese still are paying about 10% to 15% less, he said.

“It’s clearly helping,” Michaelis said of the falling dollar, “but it hasn’t been overwhelming yet.”

Consumer-electronics products are among the first manufactured products to see price changes because of the falling dollar. Sony Corp. said that it will raise prices on radios, televisions and other electronic appliances between 5% and 12% around Jan. 1. Other Japanese consumer-electronics firms, including Matsushita (maker of the Panasonic, Technics and Quasar brands), Hitachi and Sharp, say that they will follow with similar price hikes.

News of intended price rises next year are expected to spur consumers to stock up on VCRs and other equipment before Christmas.

‘Blood in the Streets’

If prices do not rise, “there’s going to be a lot of blood in the streets,” said R. J. O’Neil, executive vice president of Hitachi’s U.S. subsidiary, noting that Japanese manufacturers’ profits would be hurt.

Some of these firms say that price increases will be less on those goods produced in their U.S. plants. Sharp, for example, said TVs and microwave ovens produced in its Memphis plant will not rise as much.

Daniel J. Infanti, a spokesman for Sharp’s U.S. subsidiary, said he “would guess” that the falling dollar also might nudge Sharp into accelerating plans to expand the Memphis production line and build a second plant there.

Sony also may consider shifting more production to its U.S. plants, which include a television assembly facility in San Diego. “It’ll be a natural trend that we have to seriously consider,” said Tom Sugiyama, a spokesman for Sony’s U.S. operations.

Another Japanese firm that is expected to announce a price hike is Hitachi Seiki Co., a Japanese toolmaker with large sales in the United States. It said that it will raise export prices of lathes between 5% and 10%, and may raise the percentage of American parts in its U.S.-produced lathes to 70% from 60%.

Market Share Strong

Firms such as Sony have more flexibility to raise prices because they have a strong foothold in the U.S. market and already are charging relatively low prices, Data Resources economist Gough said. Consumer electronics makers have “got their market share locked up and won’t lose much by raising prices,” he said.

In addition, some electronics products are made almost exclusively in Japan and thus those firms have little to fear from U.S. firms not matching their price hikes. No VCRs, for example, are made in the United States.

By contrast, foreign makers of autos, textiles, steel and other products are more reluctant to raise prices, in part, out of fear of losing market shares to U.S. producers, Gough said.

Takashi Ishihara, chairman of Nissan Motor Co., suggested at the beginning of October that his firm might raise retail prices of its cars in the United States if the value of the yen fell further.

But a spokesman for Nissan’s U.S. subsidiary said that the firm still has no plans for a price hike. And spokesmen for the American units of Toyota and Honda also said that those companies have no plans to boost prices.

Little Impact on Steel

Likewise, the falling dollar “has had no discernible impact on steel, with imports still at 26% of the U.S. market,” said Henry Von Spreckelsen, a spokesman for Bethlehem Steel Corp. With other nations’ economies still weaker than the United States, their demand for steel remains low. As a result, foreign producers continue to focus sales efforts on the American market.

It also is because manufacturers in such countries as South Korea and Brazil are subsidized by their governments and thus can afford to keep prices stable to maintain their market shares and employment levels, he said.

For U.S. firms with both domestic and international operations, the falling dollar is expected to produce gains and losses.

Deere & Co., the giant farm equipment producer, expects a “mixed picture” because its small tractors are made in Japan and its mid-size models in France and Germany, spokesman Brian Alm said. Larger models are made in the United States.

May Change Suppliers

U.S. computer firms with large percentages of their parts made in Japan may eventually switch over to American suppliers for their parts rather than pay higher prices on imports, said Ralph J. Thomson, a spokesman for the American Electronics Assn.

U.S. Shoe Corp., which makes and imports footwear under such brand names as Red Cross, Pappagallo, Freeman and French Shriner, will not raise prices of shoes it manufactures domestically.

But shoes imported from Europe will go up next spring, said executive vice president Howard Platt.

“We hope our products are wanted in both cases,” Platt said.