EU-DIGEST

World Economy - Why a Weak Dollar Hurts U.S. Manufacturers - by Peter Schiff

The vast majority of economists are currently hailing the freefall of the dollar as a windfall for American business. While some domestic manufacturers may enjoy some initial benefits from a weaker dollar, they will ultimately suffer many adverse consequences as well. More importantly, the dollar's demise is a disaster for American consumers. A cheaper dollar helps domestic manufacturers because it makes local costs, such as wages and rents, decline in relation to the costs borne by international competitors. While this is true, it also means that American workers and landlords see a corresponding decline in the real values of their pay and rent. Given that such declines negatively impact living standards, such developments hardly seem worth celebrating. Too often overlooked however is how the weakening dollar also works to increase costs for domestic manufacturers. A falling dollar raises the costs of raw materials, such as oil and metals, while simultaneously decreasing the relative costs that foreign competitors pay for the same supplies.

But it is not just raw materials prices that rise. Perhaps even more important will be the prices of foreign-made components that are used in American factories.

Labels: Dollar, US Economy, World Economy