Booming Midwest Likes a Weaker Dollar : Trade: Manufacturers look to expand overseas, where their goods will be suddenly less expensive.

Here in America’s heartland, the dollar’s most recent plunge is being greeted with glee.

The nation’s manufacturers, many of which thrive on exports, stand to reap major additional benefits from the currency’s recent fall in value against the Japanese yen and German mark.

The slumping dollar means U.S. goods will be even cheaper in important foreign markets, while imports into the United States will cost more, making domestic products more competitive.

“We will be laughing all the way to the bank,” said Gordon Richards, chief economist for the National Assn. of Manufacturers in Washington.

While the dollar has been falling in value for years against the yen and mark, its decline has accelerated sharply in the past week. The dollar tumbled Tuesday to record lows of 90.05 yen and 1.3702 marks.

One note of caution: The dollar has strengthened against the currencies of Mexico and Canada, the United States’ two largest trading partners, and exports to those markets--particularly Mexico--are likely to be curbed.

Some economists also fear that the currency situation may interfere with the continuing efforts by the Federal Reserve Board to cool the nation’s economy, particularly the buoyant manufacturing sector in the Midwest.

The concern is that the faster the nation’s manufacturing sector grows, the more likely the Fed is to raise interest rates to prevent the economy from overheating.

“The dollar’s decline is good news for heavy manufacturers but bad news for the Fed,” said Diane Swonk, economist for First National Bank of Chicago.

While the precise impacts of currency fluctuations are difficult to gauge, economists say the long-term decline of the dollar has already significantly affected the U.S. economy, consumers and corporate strategies--and will continue to do so.

Most major manufacturers, which led the nation out of its latest recession, welcome the cheaper dollar. These companies--makers of autos, machine tools, chemicals, steel, electronics and other goods--see opportunities to expand or become more competitive worldwide.

Consider Caterpillar, the world’s largest producer of earth-moving and construction equipment. The Peoria, Ill., company had record 1994 exports of $4.5 billion, up 21% from 1993.

The company is expecting “modest improvement” in export sales and profits this year, particularly in Europe and Japan, where the economies are recovering from recessions. A lower dollar can only improve Caterpillar’s outlook.

“There are opportunities in some of these growth areas,” spokeswoman Marsha Hausser said.

American farmers are also gaining a tool for prying open Japan’s agriculture market. The higher yen, which makes U.S.-produced food cheaper for Japanese customers, was one of the main talking points in the U.S. pavilion at a major food fair in Tokyo on Tuesday.

Officials saw the currency’s rise as fueling Japan’s food imports.

The chemicals industry, which sells everything from paints and pesticides to pharmaceuticals and resins, in recent years has gained from a cheaper dollar. In 1994 it exported $341 billion worth of goods, more than any other U.S. manufacturing sector.

Kevin Swift, economist for the Chemical Manufacturers Assn., said a 10% decrease in the dollar against other currencies would result in a 1.7% increase in exports. “The dollar’s decline--if it lasts--should increase exports,” he said.

Machine tool makers could also get a boost from a lower dollar. The industry was seriously hurt by Japanese and German competition in the 1980s, but the U.S. survivors have modernized and become world-class competitors.

Some machine tool makers worry that a weaker dollar will prompt more Japanese and German competitors to move production to the United States to counteract the impact of their stronger currency.

For U.S. auto and steel makers, a weakened dollar is unlikely to result in substantially more exports, because those industries already have domestic products limits and facilities abroad.