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Business Disappointed in Results of Cheap Dollar

January 28, 1987

NEW YORK (AP) _ Companies from General Electric Co. to Ford Motor Co. agreed with the Reagan administration Wednesday that the dollar’s fall has had disappointingly little effect on the nation’s huge trade deficit.

The lag between the dollar’s decline and improvement in the trade gap ″has proven to be much longer than originally anticipated,″ the Reagan administration said in a supplement to its proposed federal budget.

″It’s obviously true,″ said John Deaver, chief economist for Ford in Dearborn, Mich. ″The increased (sales) volume we had last year was from the strength of the market, and not because we were taking any sales away from the foreign retailers.″

″World competition is affected by a lot more than just the dollar,″ said Jack Batty, a spokesman at the Fairfield, Conn., headquarters of GE, which is one of the nation’s top exporters. ″We have not seen across-the-board improvements.″

The cheaper dollar is supposed to shrink the trade deficit and bring back jobs to the United States by making American goods more competitive at home and in foreign markets. But even though the dollar has dropped sharply against foreign currencies since peaking in February 1985, the trade deficit soared last year to a record of more than $170 billion.

The cheaper dollar’s benefits should begin to become apparent this year, the Reagan administration says. That is ″the main factor arguing for a pickup in real GNP (gross national product) growth in 1987-88,″ the budget document said.

The document said prices for imports, excluding oil, rose 10.2 percent between September 1985 and September 1986, while prices for U.S. exports fell 1.5 percent. That should eventually slow growth in imports and increase exports, the administration said.

So far, the biggest winners from the cheap dollar have been American producers of chemicals, paper, aluminum and other commodities that are highly sensitive to price changes, said Jerry Jasinowski, chief economist of the National Association of Manufacturers in Washington.

The improvement is most notable in trade with Western Europe, Jasinowski said. ″Gains have been slower with Japan because of trade barriers,″ he said.

Farmers have not benefited as much as expected from the cheaper dollar because a worldwide glut of agricultural commodities and countries’ protection of their domestic producers have shrunk the potential market, said Walt Casey, a spokesman for agribusiness giant Conagra Inc. in Omaha, Neb.

Nevertheless, Casey said, ″The key thing for us is that a weaker dollar is likely to make U.S. agricultural products more competitive in world markets over time.″

United Technologies Corp. of Hartford, Conn., has seen mixed results from the dollar’s drop, spokesman Rick Whitmyre said. ″Most of our products are big-ticket items that require long lead times, so fluctuations in currency don’t have much impact.″

One winner has been the company’s Otis unit, which makes elevators and escalators and does two-thirds of its business outside the United States. Because of the benefits of translating local currencies into the dollar, ″Each time the dollar drops 10 percent, Otis increases revenue and profit by roughly 6 percent,″ Whitmyre said.

Companies that import products from overseas, such as retailers and consumer electronics merchandisers, can be hurt rather than helped by the dollar’s fall.

Sears, Roebuck & Co., the nation’s largest retailer, has emerged fairly well because it buys 90 percent of its merchandise in the United States, spokesman Gordon Jones in Chicago said.

But companies that import videocassette recorders, microwave ovens and other products that are largely made outside the United States are being squeezed. Relentless competition has actually driven down the price of an inexpensive compact disk player to under $200 now from $800 or so when they hit the market in 1983, said Allan Schlosser, spokesman for the Electronic Industries Association.

″It’s placed severe strains on our industry in general,″ Schlosser said. ″I’ve got to think these companies have reached the limits of what they can absorb.″

Economists give a long list of reasons for the persistence of trade deficits, including discrepancies in world growth rates. Consumers in the United States are satisfying their voracious appetite for products with imports, while other nations with sluggish economies do not have any demand for American-made products.

Also, in spite of the dollar’s roughly 40 percent decline against the West German mark and the Japanese yen since a five-nation meeting in September 1985, the U.S. currency has actually stayed flat or even risen in value against the currencies of such important trading partners as Canada, Mexico, Brazil, South Korea and Taiwan.

Moreover, it takes time for people to switch over to American products even after they become cheaper because of long-term contracts and ingrained buying habits.

″A decline in the dollar today isn’t going to affect the trade flows for six to nine months, perhaps longer,″ Jasinowski said.

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