Dollar Woes
What the president's reelection strategy means for the dollar and the economy.
by Irwin M. Stelzer
02/24/2004 12:00:00 AM
IT HAS BEEN almost 50 years since our government decided to emblazon "In God we trust" on the nation's paper currency. That's more comforting to some than "In markets we trust," but somewhat less accurate, now that the Bush administration has abandoned the so-called "strong dollar" policy of Bill Clinton and Bob Rubin. If anything about the Bush administration's economic policy is clear, it is that jobs are the number one priority, the word "jobs" being the politic translation of the real priority, reelection of George W. Bush.
The president faces a difficult campaign in which he is already being accused of destroying more jobs than Herbert Hoover. In key states such as Ohio, Illinois, and Michigan many voters are convinced that it is Bush's fault that they are out of work because their jobs have been exported to China and other low-wage climes. Lectures on the virtues of free trade pale in impact with reports that software developers who make $60 per hour in the United States work for $6, and data-entry clerks who can earn $20 per hour here make $2 in India.
Until now, the president has been counting on his tax cuts to revive the economy--and he has been right. What he didn't count on was that even current robust growth wouldn't create the number of new jobs generally produced at this stage of a recovery.
With the Democrats turning protectionist, the trade deficit mounting, and China and India now competing successfully in markets for high tech products, the
administration has decided that a cheaper dollar is one answer to its problems. As a consequence, American goods are starting to become cheaper overseas, and chemical giant Dupont is already saying that increased exports are leading to significant new hires.
Whether the dollar has fallen far enough to stimulate exports, cut imports, and add to job creation fast enough and soon enough to help the president is uncertain. But one thing does seem certain: that there is nowhere to go but down. To understand why, consider whether it is likely that any of the developments that might halt the dollar's descent are likely to occur.
THE MOST OBVIOUS REASON for the fall in the dollar is America's trade deficit. We send the world our bits of paper, they send us their goods and services. As our trading partners pile up dollars, they become less enthusiastic about accumulating still more. Unless of course the price drops--enough to make the bits of paper more attractive to buy, but not so much as to threaten a continued precipitous fall that would dictate dumping dollar holdings.
Eventually, the dollar will fall to a point where the trade deficit starts to look more manageable. But so long as our two important trading partners, China and Japan, refuse to allow the dollar to fall sharply relative to their own currencies, their goods will seem cheap here, and American products expensive in their markets. That will force the dollar to keep dropping, to a point well below that which would prevail in a truly free currency market. Which is why Bush is sending still another mission to Beijing in an effort to get the Chinese authorities to permit a major rise in the renminbi. |
