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Dollar's Fall May Lift Exports

by Steve Wilhelm
Puget Sound Business Journal, May 26, 2003

Washington exporters are welcoming the weaker U.S. dollar, since it will reduce the price of their products overseas and give them an edge against foreign competitors.

This week it took only 0.85 euros to buy a dollar, the dollar's weakest performance since the European currency was launched in 1999. In the past year the euro has strengthened by 25 percent against the dollar. Similarly, the dollar is at a two-year low against the yen.

"It gives us a little advantage in a lot of markets," said Tom Mick, CEO of the Washington Wheat Commission in Spokane. "It's definitely going to help us out."

Japan and Europe are the state's two largest trading partners, so the relative strength of the euro and yen is significant for Washington's export activity. The state's non-aerospace exports fell 8 percent last year, partly due to weakened Japanese and European economies but also because at the time the dollar's strength discouraged exports.

The weaker dollar could help at least half of that equation, because overseas buyers will be able to buy more Washington products with the same amount of their currencies.

Mick said even a slight change in value can make a big difference in the price-sensitive market for bulk global wheat shipments. Wheat is traded as a commodity, which means that buyers don't care where the wheat comes from, and will buy solely on price as long as they can get the quality they need.

Wheat growers may get an extra lift because the currency of a big wheat competitor, Australia, is growing stronger.

The weaker dollar is less immediately helpful for makers of more value-added or proprietary products such as machinery, software, or aircraft. In such sectors, buyers often use many criteria aside from price, so changes in the exchange rate are more likely to impact profit margins than sales volume.

"Right now, with the dollar, it's hurting Airbus," Boeing Commercial Airplanes CEO Alan Mulally told investors and analysts at a May 8 conference. "We've been relatively quiet because sometimes it helps you, sometimes it hurts you. There were a number of years when we were being hurt. Now Airbus is being hurt."

Washington-commodity products that may be boosted by a weaker dollar include seafood, fruit and wheat. All have been battling less-expensive competitors in overseas markets. With soft white wheat and some species of high-end seafood, nearly all of the state's production is exported.

"When you talk about salmon or surimi, the export markets are critical," said Ken Talley, editor of the Seafood Trend Newsletter, published in Seattle. "Seafood people are looking closely at the currency situation, for its bearing on the Japanese salmon market."

Much of the state's pollock catch is converted into surimi products for the Japanese market, and industry executives say they hope the weaker dollar will help them recover market share they've been losing to cheaper alternative fish. Japanese buyers prefer the higher-quality pollock surimi, if the price isn't too much higher.

"We have had a lot of competition out of China and India and Thailand the last six months, and a weaker dollar is a welcome relief," said Doug Christensen, chairman of the United States Surimi Commission and president of Arctic Storm Inc., a Seattle pollock fishing company that operates two trawlers in the Bering Sea.

Pat Boss, CEO of the Washington Potato Commission in Moses Lake, said he expects the weaker dollar will give Washington french fries a lift over competing product from Canada.

"In other markets, like Japan or China, we believe our frozen french fries will be more affordable compared to Canadian fries," he said. "We think it's going to help, but we haven't seen a lot of direct impact yet."

Treasury Secretary John Snow has indicated the United States intends to let market forces determine the dollar's level against other currencies, and that the government will be less likely to prop the dollar up than it has in the past.

But economists warn not to look for immediate improvements from the weakened dollar, because in many cases prices are locked in by long-term seasonal contracts that won't expire for many months. Any export recovery also has a long way to go, with the United States last year running a record $435 million trade deficit last year.

But the export picture is more complex than just the effects of exchange rates, and strong U.S. exports are closely tied to the economic health of buying nations.

This is especially true with Japan, which remains the largest single market for Washington goods despite more than a decade of Japanese economic stagnation. Last year Japan imported $4.3 billion in Washington goods.

But Japan's ability to import from Washington depends on the strength of the Japanese economy, which in turn depends to a large degree on Japan's ability to export its own products. For Japanese officials, who hope their country can export its way out of its doldrums, the stronger yen is bad economic news.

Steve Wilhelm
Dollar's Fall May Lift Exports
Puget Sound Business Journal, May 26, 2003

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