A Powerful Export Boom Can Take Root in America : Economy: A dropping dollar is no panacea. But it gives U.S. producers an edge and suggests a bright economic future.
If you talk to Richard Studer, you’ll get a good picture of the economy’s dispiriting present--and also its brighter future. Studer runs an Ohio company that produces plastics-making machinery. Business is down, and the company has laid off 100 of its 800 workers. The bright spot is exports. they’re up and represent about 15% of orders. There’s the future: The U.S. economy should soon emerge as a powerful export machine.
Remember the chatter about us becoming a nation of hamburger flippers? The idea was always outlandish, but now the economy is moving in the opposite direction. It’s shifting from growth led by the service sector to growth led by rising exports. Service industries that overexpanded in the 1980s--real estate, banking and retailing--are retrenching, while the dropping dollar should spur exports. The change is one reason why the economy is teetering on the edge of a recession.
The bad news is that the service slump is overwhelming export expansion. In the past year, the economy has grown a meager 1.1%. That hasn’t been fast enough to prevent rising joblessness. The unemployment rate in September was 5.7%, up from 5.3% a year earlier. Many economists expect a recession. The good news is that any recession may be cushioned by the effects of a lower dollar. Since 1985--when it reached its recent high--the dollar has declined roughly 50% against other major currencies.
Consider the impact on Studer’s machinery. Among them are extruders, which can make everything from plastic pipes to drinking straws. The least expensive extruder costs $25,000. With today’s exchange rate of about 1.5 deutsche marks to the dollar, that machine costs 37,500 DM in Germany (plus transportation). But in 1985, the exchange rate was nearly 3.4 DM to the dollar. A $25,000 machine then cost roughly 85,000 DM.
Wham! the dollar’s depreciation makes U.S. manufactured goods enormously competitive. The export boom has already begun. Between 1985 and 1989, exports jumped from $219 billion to $364 billion. But the boom has stalled in 1990, because the dollar’s exchange rate rose somewhat last year. The dollar’s recent decline reverses that trend and restores the price competitiveness of U.S. exports. The trade deficit, now running at about $100 billion annually, should drop. In a poll, the National Assn. of Manufacturers found that 52% of executives expect higher exports in 1991; only 10% expect lower.
The idea of welcoming a weaker currency may seem subversive. A cheaper dollar isn’t all sweetness. Traveling abroad is costlier for Americans, while visiting theUnited States is less expensive for foreigners. More fundamentally, the decline in our trade deficit will increasingly force us to live within our means.
What happens to the economy is anyone’s guess. The outcome of the Persian Gulf crisis could quickly change things for better or worse. What’s less murky is the connection between the health of the U.S. economy and foreign economies. The severity of any U.S. recession will depend heavily on what happens in Europe and Asia. Slumps overseas that cut demand for our exports would compound the damage, as would a spasm of foreign protectionism.
A dropping dollar is not an economic panacea. It merely gives U.S. producers a price edge in international markets. But price isn’t everything. There’s also product quality and reliability, aggressive salesmanship and good service. In the 1990s, American industry will have an opportunity to create its own brighter future. Whether the opportunity is seized or squandered depends on the country’s Richard Studers.
