(Nov. 29, 2004) — How do you like your dollar, weak or strong? It depends, we suppose, on how you view opportunities in the international arena.
But there's no question that the weaker dollar of the last few months has benefited quite a few firms in the plastics manufacturing sector.
It currently takes about 102 Japanese yen to buy a dollar, or nearly $1.30 to buy a euro. If you plan to vacation in Tokyo or Paris, that's downright painful — everything you buy is a lot more expensive than it was back at the dollar's recent peak in 2002. But if you're competing with molders, mold makers or machinery suppliers in Germany, Portugal or Japan, the weak dollar means big savings to your customers.
While the Bush administration talks about wanting a strong dollar, the White House finally seems to understand that the unfavorable exchange rate was too much of a drag on the domestic economy a few years ago.
There's one big problem with this strategy — it doesn't address China.
Rather than having a currency that floats on international markets, China has tied the value of the renminbi to the dollar. So whether the dollar is strong or weak in the rest of the world, its value is pretty constant in China. And while Bush is pushing for China to revalue its currency, Chinese officials are in no rush.
In an interview last week with the London-based Financial Times, Li Ruogu, deputy governor of the People's Bank of China, said China would “gradually move towards a more flexible exchange rate” — but not under heavy pressure from critics in the United States, Europe and Japan.
He went on to say that “The appreciation of the [renminbi] will not solve the problems of unemployment in the [United States], because the cost of labor in China is only 3 percent that of U.S. labor. They [the United States] should give up textiles, shoe-making and even agriculture, probably. They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance the trade.”
Is that a realistic scenario? For the United States to simply give up on large manufacturing segments of the manufacturing sector — and even on agriculture? No, it is not, and the Chinese know that. Just as it is not realistic to think that China will allow its currency to float any time soon, knowing that the move would create an economic slump that would echo around the world.
This is a complex problem, and Bush seems to be addressing it correctly. U.S. manufacturers shouldn't expect relief soon. But at least they can take some solace in the fact that U.S. goods are becoming more competitive elsewhere.