Exports Are Up, but We’re ‘Winning Ugly’

A good question: If the dollar declines against the German mark and other currencies, as it has in recent weeks, are you poorer?

Yes, say economists. Even though a low dollar helps U.S. industry in world markets, you’re poorer in many ways. Obviously, your dollar buys less in foreign goods, whether hotel rooms in Tokyo and Madrid, or Mercedes and Volkswagens here at home.

Your purchasing power is declining in other ways too. Traditionally, American workers had more to buy with their wages than workers in any other country. And that abundance continued in the past decade, thanks to imports bought at the expense of the U.S. trade deficit. But the flow of foreign products may be drying up; total imports are up only slightly, and consumer goods have been flat for years.

Meanwhile, workers in other countries, who often earn more than Americans, will have the buying power--and their economies will have the growth--to command the output of their own and other countries. Which means that Americans will consume less but produce more for others--producing for export.

Again, that trend has begun. U.S. exports in the past four years rose 60%, as the falling dollar effectively cut the price of U.S. goods overseas. Five years ago, a machine costing $1,000 in the United States would have to be priced at 3,660 marks in Germany but now can be sold for 1,450 marks.

The low dollar ensures that the strong export trend will continue.

But it also raises a question: Why America years ago could sell its goods all over the world when it had the highest-valued currency and the world’s highest wages?

The short answer is that we innovated--but more on that later. For now, let’s focus on the jobs and production that the low dollar will bring to America in the years just ahead. “The United States will be the best place in the world for high value-added production,� says economist Adrian Dillon of Eaton Corp., a Cleveland-based manufacturer of auto parts and electrical equipment that does 30% of its business overseas.

Low labor costs are a big reason. U.S. wages are 58% below German wages, says Dillon, while as recently as 1985 they were 26% above. The wages didn’t change that much, but the currency values did. The U.S. dollar fell more than 50% in value against the mark and almost as much against other currencies.

That means Daimler Benz in Stuttgart, which makes the Mercedes, can pay its workers a wage comparable to Detroit auto workers but must raise its price when selling in America to get enough dollars to cover those high-deutschemark labor costs back home.

America is the competitive place to produce, as the Commerce Department has just confirmed with new figures showing that output per worker hour in U.S. manufacturing rose 3.6% a year in the 1980s, a historically rapid rate. Those productivity gains came from the blood, sweat and tears of industrial reform--the weeding out of inefficient producers, the cuts in wages and benefits and in numbers of employees.

And with the low dollar translating that efficiency into competitive pricing abroad, the projection is for a continued rise in foreign companies choosing to make things in the United States. There are many attractions for foreign companies: They can sell in both the big U.S. market and elsewhere too; their strong currencies offer them bargain purchases of U.S. plants and equipment.

Thus the trade deficits are being repaid by selling U.S. factories and low-cost labor. And although the payoff is in U.S. jobs and prosperity, Americans are right to note that today’s competitiveness is different from that of years ago. As they say in sports, we’re “winning ugly� today, where 20 years ago we seemed to win effortlessly.

“In 1970 the United States had higher production costs than Japan and Europe. Yet the U.S. was able to pay its way in world trade by exporting things that other countries could not yet produce, newly developed goods, goods involving sophisticated technology,� economist Paul Krugman of Massachusetts Institute of Technology notes in his book “Exchange-Rate Instability.�

Those were the days when America was first out with the products everybody wanted. “The real story was the lead in technology,� says Robert Z. Lawrence of the Brookings Institution, an expert in industrial economics. “But foreign countries copied and caught up, so we lost the uniqueness in our products.�

You get a premium for uniqueness, a profit for innovation. It allows you to live well and compete easily. But when your products no longer have that uniqueness, “you have to scramble with the rest,� says Lawrence; “your standard of living declines.�

So the United States is scrambling. And the country increasingly winning the innovator’s profit today is Japan--which copied the United States for years.

Are we poorer because the dollar is low? In one sense, of course not; it gives us needed export sales and jobs. Still, there’s no denying we’d be richer if we earned the innovator’s profit once again.