European industrialists pained by the dollar’s decline

Europeans Toughen Line on the Dollar’s Weakness

Business / World Business
Europeans Toughen Line on the Dollar’s Weakness
By KATRIN BENNHOLD and STEPHEN CASTLE
Published: December 5, 2007
European policy makers hardened their tone this week on the decline of the dollar, as economists trimmed their growth forecasts for the 13-nation euro area.

Excerpt:

Louis Gallois, chief executive of the European Aeronautic Defense and Space Company, has become the most vocal among European industrialists who are feeling the pain of the dollar’s decline.

This week, Mr. Gallois said that over the next decade, the consortium’s Airbus subsidiary would be obliged to produce more of its planes outside Europe.

The plane maker, which sells its airplanes in dollars but incurs about 50 percent of its costs in euros, loses 1 billion euros, or $1.48 billion, in profit every time the euro gains 10 cents against the dollar. This places the company at a competitive disadvantage against its American rival, Boeing, whose costs are almost entirely dollar-denominated.

Latécoère, a major French subcontractor for Airbus, has already begun moving some low-value-added work to Morocco, Tunisia and Brazil.

Comment: Compare earlier Airbus post!

Tyler Cowen: The benefit of the weak dollar

The Dollar Is Falling, and That’s Good News

Economic View
The Dollar Is Falling, and That’s Good News
By TYLER COWEN
Published: December 2, 2007
A weaker currency helps America sell more products abroad.

Excerpt:

A falling dollar does mean price inflation in the United States. Just as it costs more for an American to buy a fancy meal in Paris, so do French wines and German cars have a higher markup when they are sold in New York. But imports are only 16 percent of the American economy, and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. Furthermore many price increases from Europe come on luxury goods and thus they fall on wealthy American buyers, who can afford it most easily. Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia, where currency values have remained weaker against the dollar.

Of course the lower value of the dollar also makes American exports more competitive. Much of Middle America is booming because of its ability to sell tractors, food stuffs and other products abroad at favorable prices. Even after a serious real estate decline, the American economy is continuing to expand, and this is largely because of the strength of our export sector, as encouraged by a low value for the dollar.
....
SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. This isn’t because of neglect or lack of interest; trillions of dollars worth of currency are traded every day, so policy makers have only a limited ability to push around long-term exchange rates, even if they wanted to do so.

When it comes to market prices, people can always find reason to be unhappy. In the eurozone, for example, it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services.

In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

“Autos Katrina”

Katrina-ravaged cars being sold in Bolivia

Excerpt:

Suspected Katrina cars — with their jittery wiring, sand in the cracks and the telltale mildewed stink — have cropped up in a number of countries, but Bolivia has become a particular target. One local environmental agency believes 10,000 or more flooded U.S. cars may have ended up in the landlocked nation, drawn by loose import rules, a thriving smugglers’ economy and an insatiable hunger for cheap wheels.

Comment: Trace the history of a cute red Mini Cooper from a graduation gift, to New Orleans, to Bolivia! I'm sure the Bolivians appreciate this!