Sunday, February 8, 2015

Countering the Negative Influence of the American Dollar on Exports

The trade gap bumped to $46.6 billion in December from $39.8 billion in November showing a move in the wrong direction. Exports are somewhat complex and even though new businesses have been recently attracted back to American shores they have not yet taken hold in full force. Likewise, the rise of the value of the American dollar means that exports are expensive and imports cheaper. Despite the damaging effect of a higher dollar there is something that can be done to counter this impact and improve exports.

It should first be remembered the any number and any dollar is subjective in value. This means that its value is only as good as it relates to some other item. For example, the number two is a higher number than one but both are relative to the other. One must still relate to some measure such as inch, centimeter, etc... that reflects an actual distance in our environment.

The same can be said for the dollar that is compared against some other metric to determine its value. One American dollar equates to .88 Euros. In January of 2014 the dollar was worth .72 Euros. The dollars value as a stable currency is rising and this is making American dollars and products more expensive for international markets. Exports are becoming more expensive because it takes more international currency to purchase.

As a subjective measurement the price is a reflective number on the comparable worth of a unit of production. In the U.S. we consider an hour of a person's time as a unit of production and we are willing to pay a certain dollar value per hour. Wages are factored into the overall cost of producing a product for sale on the market. If the dollar rises in value we are paying more for that unit of labor that is reflected in the final price.

This doesn't mean that the American economy is doomed. It is possible that it won't have a long term impact if we understand the other factors that go into the value the dollar that result in a particular value on the market. The dollar produces more when worker productivity, innovation, and skill are put to use in industries that can compete on the market.

The American worker would have to produce a lot of generic widgets to keep up with a Chinese worker to create value. However, if the American worker is more productive through the use of technology then his/her value rises in the overall production requiring less hours to produce products. Technology, skill and productivity can come together.

We may also raise the value of American labor through focusing on those industries that have the highest value on the market. One of the reasons we don't compete in textile industries anymore is because the products can be produced cheaper overseas and have relatively low value. The process can be run with moderate technology somewhere else.

Now if we were to place our workers in high end manufacturing, service, and other valuable industries we can create high value products that can lead the market. We can find this value in manufacturing, light metals, micro processing, IT services, and much more. These are the advanced industries that should power our economic return and create a more export driving economy. The value of the American dollar is subjective based on the value of the products produced and the efficient use of input. Educating our workers in demand industries and focusing their attention on exports can go a long way.

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