The global slowdown is finally hitting U.S. exports.
The Commerce Department reported Friday that exports fell 0.8% in April, the
first drop in five months. Shipments to the euro zone plunged 9.8%. A larger
fall in imports narrowed the total U.S. trade deficit to $50.06 billion, but the
gap is higher than its first-quarter average.
When exports get crimped, a common reaction from politicians and
manufacturing groups is to call for a cheaper dollar. A weaker currency makes a
country's products cheaper on global markets--a reason why China micromanages
the value of the yuan.
A weak currency, however, is not in the cards for the U.S. The dollar is
expected to continue to strengthen as investors seek safety amid no solution to
the euro-zone crisis and worries about the global slowdown.
But a strong dollar can be a positive to U.S. companies because it will force
them to remain competitive in the long run, argues Michael Drury, chief
economist of McVean Trading & Investments.
Mr. Drury calls a cheap currency "a sugar high" that gives a temporary price
advantage but doesn't correct the underlying problems that are eroding the
currency's value in the first place.
"Meanwhile, [a] stronger currency forces the stronger competitor to up their
game--while at the same time providing them with the lower borrowing costs to do
so," Mr. Drury argues.
The easier financing enables successful nations to become stronger by
"allowing them to acquire the best practices and brightest employees of the
weaker nations at a discount," explains Mr. Drury.
A nation like the U.S. that is facing long-run debt problems and an aging
population should be taking the long view of its economic health. In an era of
cheap financing, the economy can make investments to enhance productivity and
global reach. That spending will allow for higher income streams in the future.
"Competitive devaluation is not good long-term economic policy--but it is
often seen as good politics," Mr. Drury says.
Indeed, it is very easy for politicians to blame the currency markets for a
country's competitive shortfall.
But instead of pointing fingers, the U.S. needs to invest in education,
technology and infrastructure and to reform regulatory oversight that will give
its exporting sectors the long-term edge in global markets.
(Kathleen Madigan, a special writer, is the primary author of the Big Picture
column. She covered the economy for almost two decades at BusinessWeek and
worked in the economics departments at several Wall Street firms. She can be
reached at kathleen.madigan@dowjones.com.)
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