The New York Times
By: Motoko Rich & Jack Ewing
November 15, 2010
A weakening currency traditionally helps a country raise its exports and create more jobs for its workers. But the declining value of the dollar may not help the United States increase economic growth as much as it might have in the past.
Though a weakened dollar would help exports to some degree, business executives and economists said that because of the ways American multinational companies operated, it was uncertain whether it would cause much of an increase in hiring.
The issue is crucial for President Obama, who made economic growth and job creation the main themes of his recent 10-day trip to Asia. He has also held out the prospect that a surge in exports would reduce the nation's stubborn unemployment rate, currently 9.6 percent.
Other world leaders have complained that American policies, especially the monetary easing the Federal Reserve announced this month, will depress the dollar and give American exporters an unfair advantage.
Mr. Obama and Treasury Secretary Timothy F. Geithner have repeatedly defended the central bank's action as a move designed to encourage American businesses to borrow, invest and hire rather than one specifically aimed at lowering the value of the dollar.
But even if the Fed's action does end up weakening the dollar, American workers may not benefit much. For one, many big American manufacturers, from General Motors to General Electric, often make goods in the countries where they are sold rather than shipping the products abroad. This effectively takes exchange rates out of the equation, since they are using only one currency.
What is more, companies that do send goods to other countries often buy components from abroad, so the advantage of a weaker dollar in selling is offset by the higher cost of buying.
"There are very few corporations that would see this just in one way," said Martin Regalia, chief economist at the United States Chamber of Commerce. "It cuts across a whole bunch of lines."
Even when a company enjoys a relative surge in foreign sales, it won't necessarily lead to a hiring spree. That is because the largest proportion of American exports are still manufactured goods, which are no longer so labor-intensive.
And many of the companies that still manufacture in this country are businesses that have not gone offshore because they are too small to justify setting up overseas operations. A weak dollar can help their businesses, but it may not prompt a wave of hiring.
"The net export effect is going to be positive, but it won't be the driver of jobs," said Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group. "You can replace people with machines."
According to Nigel Gault, chief United States economist at IHS Global Insight, the dollar fell by 31 percent against a basket of major currencies since 2001, as American exports increased by 45 percent. But manufacturing employment dropped by nearly a third in that time, to 11.7 million workers from 16.4 million.
The dollar has already fallen by about 10 percent against a range of currencies since the beginning of June, and government figures show that American exports rose in September by $500 million, or 0.3 percent, to their highest level in two years.
Despite the outcry from other world leaders after the Federal Reserve's decision to inject $600 billion into the economy, the dollar strengthened slightly last week. But even if it does start drifting down again, most economists do not expect the devaluation to be steep. Some argue that most of the weakening has already happened because traders have anticipated the Fed's action for some time.
Gary C. Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, said he expected the dollar to fall another 10 percent in coming months, based on a basket of currencies from countries that trade with the United States.
He estimates that such a decline would lead to about a $100 billion increase in American exports over the next two years, which he believes could translate into about 500,000 jobs. Although Mr. Hufbauer said that number was "not bad," he noted that it would not put much of a dent in the nearly 15 million people who are still out of work.
Another reason increased sales abroad might not translate into American jobs is that American companies have moved steadily overseas in recent decades. The number of workers employed by American companies abroad more than doubled from 1989 to 2008, to 10.5 million, according to the United States Bureau of Economic Analysis. Companies mostly wanted to open up foreign markets, and in some cases take advantage of cheaper labor, studies show, but less vulnerability to currency movements was an important fringe benefit.
With more companies building local factories, exchange rates matter less. General Motors and Volkswagen compete fiercely for business in China, a crucial market where both automakers build almost all their cars locally rather than ship units in from their home countries.
Because the Chinese renminbi tracks the dollar -- meaning that products from the United States should be cheaper than imports from Europe -- G.M. would seem to be at an advantage.
While G.M. has been gaining market share in China, "it has nothing to do with currencies," said Ferdinand Dudenhöffer, director of the Center Automotive Research at the University of Duisburg-Essen in Duisburg, Germany. Rather, he attributes G.M.'s gains to cars like the Chevrolet Sail that have found favor with local consumers.
"The dollar is not a problem for VW or G.M.," Mr. Dudenhöffer said.
Experience suggests that currency movements alone are unlikely to correct trade imbalances or lift exports. A decline in the value of the dollar against the yen did little to correct the United States trade deficit with Japan during the 1980s, according to a study released last week by HSBC.
Indeed, some American companies report that a weakening dollar does not enhance export volumes. Roger Sustar, president of Fredon Corporation, a Cleveland-based manufacturer of parts for the aerospace, defense, rail and medical industries, said that although the dollar had weakened against the British pound over the last two years, the company had not increased sales in Britain.
Rather, Mr. Sustar said, existing clients "haven't been beating the bejeebers out of us to lower our prices."
Some economists argue that if the dollar weakness lasts long enough it will have some effect on unemployment in the United States. A sustained increase in exports would create jobs throughout the economy as businesses that supported the companies selling abroad also started hiring. "There's a multiplier effect," said Steve Blitz, a senior economist for ITG Investment Research.
Mr. Blitz said that, in fact, the United States economy should rely more heavily on export businesses to create jobs, rather than predominantly depending on American consumers, who account for an estimated 60 percent of the country's economic activity. "The model of the last 30 years can no longer continue," Mr. Blitz said. "The job creation has to come from the export sector."
Another potential for jobs will come from foreign companies who build operations in the United States, in part to avoid currency fluctuations going the other way. BMW, for example, broke ground on its first plant in South Carolina in 1992, and in September opened a second factory near Spartanburg, where it had already hired 1,000 workers, with plans to hire 600 more. "Currency hedging is definitely one piece" of the company's rationale for building the plants in the United States, said Thomas Kowaleski, a spokesman for BMW North America.
Currency fluctuations are just one part of what makes an American good or service more attractive to foreign buyers. Typically, a weaker dollar has provided a lift to American hotels and tourism destinations, as travelers from Europe and Asia suddenly find their money goes further at Disneyland or Bloomingdale's.
But these days, tourism officials say, travelers have so many locales around the world to choose from that currency moves don't necessarily translate into travel booms.
"Nowadays in the travel world, it's such a competitive market to try and get people to come to your destination," said Carol Martinez, a spokeswoman for the Los Angeles Convention and Visitors Bureau. "The value is a factor but there are many other factors, too."