Forex Blog: Currency Trading News & Analysis.

March 18th 2005

Weak Dollar not helping trade imbalance

The US trade deficit is widening, despite the weakening of the USD. In theory, a weaker dollar should make US goods and services more attractive to foreign consumers. Moreover, foreign goods and services should become more expensive. The former has proved true, as American exports have surged. However, foreign businesses have reacted to increasingly unfavorable exchange rates by lowering their prices, so as not to lose market share. There are two factors in the trade balance- exports and imports. And imports have not shown any signs of slowing, as the booming American economy has left American consumers with more disposable income, which they have used to import more foreign products. Furthermore, the Chinese Yuan is pegged to the dollar, so a weaker dollar has had no effect whatsoever on the US-China trade deficit, which grows wider every day. The World Peace Herald reports:

With the dollar declining, it was expected that exports would surge. They are not, and part of the problem is that U.S. firms are increasing prices rather than going all out to get market share. That is a short-term profit maximization philosophy that will not leave the country or the firms in a whole lot better shape than before the dollar decline.

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Posted by Adam Kritzer | in US Dollar | No Comments »

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