U.S. Exports at All-time High in June

Comments

August 12, 2008 at 5:32 pm

(1) Ajay Madwesh says:

Kim,

I don’t necessarily buy this article nor others who have conjectured as such as well. The US export growth due to a weaker dollar has several underlying assumptions that I am not sure accept:

a) If just the effect of weaker dollar is spurring exports then the US has to be increasingly exporting commodities goods/items. It cannot be producing products and services that are globally consumed in such a short time frame. Commodities are the only product sector that people can switch to and away from in short intervals as they don’t have any real loyalty to. I don’t believe this is true as there are very low cost competitors in the commodities segment who can manipulate currencies to win that business.

b) Another assumption is that the US products are displacing EU based products or Japanese products. That is the only way consumers are moving across like products. Generally, due to brand loyalty and other perception barriers, this does not occur in short time frame – usually takes 10 years for such phenomenon.

c) If just the weaker dollar is spurring exports then there has to be a very high price parity across the world markets for goods that the US is shipping – thus a 20% loss in value of the US dollar results in close to 20% lower market price. Generally, local competitors easily address such phenomenon by re-negotiating retailer agreements to offset the competitor price reductions. It takes years to for this to play out. I don’t believe that is true as there is not much of an equivalence in products or services themselves.

c) The US delivers high quality products and services but is not a global low cost provider as indicated by Japanese, Chinese and Pacific Rim exporters. Thus lower prices of products (due to weaker dollar) cannot be a significant factor – China’s currencies may still undervalued by a third relative to market exchange rate of a Yuan.

So, is it possible that the export growth is here to stay and the correlation of weaker dollar to exports is an aberration? I submit that finally the US is readjusting structurally and its product & services sector are truly becoming global. Exports are a result of this adjustment not weaker dollar. We will know in the next 6 months as the dollar continues to strengthen but exports continue to grow.