Falling dollar good for exports

Falling Dollar Spurs Foreigners to Buy American, Pushing Exports to Record Level

Excerpt:

The improvement came from a 1.1 percent jump in U.S. exports, which climbed to a record $140.1 billion. The dollars' decline against many major currencies has made U.S. goods cheaper and more competitive in foreign markets. For September, sales of American-made cars, computers and farm products including corn, cotton, wheat and soybeans were all up.

Imports also rose in September, climbing by 0.6 percent to $196.6 billion, the second highest level on record. Imports of foreign-made cars, televisions and clothing were all up. Oil imports, however, fell by 0.8 percent to $10.5 billion, an improvement that is likely to be temporary given the recent surge in oil prices to close to $100 per barrel.

The deficit with China rose 5.5 percent to $23.8 billion, second only to a $24.4 billion deficit in October 2006. Imports surged to the second highest level on record, pushed up by big gains in imports of Chinese-made televisions, cell phones, computers and toys as retailers stocked their shelves for Christmas.

Those gains were occurring despite a string of high-profile recalls of Chinese products this year -- everything from toys with lead paint to defective tires and chemical-tainted toothpaste and pet food ingredients.

Through September, the trade deficit is running at an annual rate of $703.4 billion, down by 7.4 percent from last year's $758.5 billion. Analysts believe that surging exports from a weaker dollar will lead to a narrowing of the deficit for the full year, breaking a string of five consecutive records.

Critics of President Bush's trade policies say that even with the narrowing of the deficit this year, the imbalances are still running at unsustainable levels, forcing the United States to depend more and more on foreigners' willingness to hold dollars to finance the imbalances.

While a falling dollar is good for exports, it raises worries that at some point foreigners will be less willing to purchase dollar-denominated investments such as U.S. stocks and bonds. Such a change in sentiment could send stock prices plunging and push up U.S. interest rates.

Comment: The economic silver behind the gray cloud!