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American manufacturing jobs are under pressure because of the dollar's value

By Steve Beckman - posted Saturday, 1 September 2001


Obviously, exchange rates do affect trade balances. Trade balances do affect jobs in the United States. And therefore, the kind of growth in the trade deficit we’ve seen in the United States, which has been exacerbated by the increasing value of the dollar, has hurt American manufacturing workers in particular, and manufacturing jobs do matter to the U.S. economy. And so the difficulties that U.S. manufacturers have experienced as a result of the trade problems of the United States do have a depressing effect on the US economy, its rate of growth, its distribution of income, the equity that is experienced here in this country.

These are factors that matter to workers. And the exchange rate does affect them. And in the last several years, the exchange rate has affected these areas in ways that are detrimental to the interests of workers and, in our view, detrimental to the long-term effective functioning of the US economy. And as has already been stated, since the US economy is a rather large factor in the well-being of the international economy, that’s of concern as well.

Obvious point two. The Union of American Workers (UAW) represents a lot of workers who are directly affected by exchange rates. We produce products for export. Our members produce products that compete with imports in the domestic market. The value of the dollar has a significant effect on UAW members. That’s a fact and, again, should be obvious.

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I’ll mention a few examples. In the auto industry, where the UAW represents a rather sizable number of workers, the strong dollar has definitely affected the conditions of competition that determine prices and sales here in the domestic market. And for the most part, US vehicles are not exported, so that’s not where our main interest is in this particular industry.

So looking at the domestic market, the increase in the value of the dollar gives imported products a tremendous amount of flexibility in terms of making choices between reducing prices - and there’s a lot of price competition going on in the domestic market right now. Anyone who’s looked for vehicles and compared rebates knows that.

So there’s a lot of price competition and companies that benefit from the strong value of the dollar are able to play off how much they’re willing to accept in lower prices, because they’re not lower prices in their home country currencies, against higher profits for those companies. So the strength of competition in the domestic market varies tremendously as a result of the exchange rates.

Now, in the past five years, the United States trade balance in automotive products with the countries in the European Union has gone from a $9.8 billion deficit to a $22.8 billion deficit. That’s a huge change in five years. It’s not because Mercedes and BMW are all of a sudden much more popular vehicles. It’s because the companies have pricing flexibility that allows them to buy market share. That’s what they can do. That’s what they do do.

The deficit in automotive trade with Japan has also increased substantially, from $32 billion to $44 billion during this time. And the deficit in automotive trade with Korea has gone from $1.3 billion in 1995 to $5.5 billion last year. And just in the first four or five months of this year, that deficit’s up by 36 per cent.

Now, there are a lot of things that are going on in the US economy, obviously. There are a lot of things going on in the auto sector. Demand has been buoyant. But the increased sales of these imported vehicles is facilitated by the strength of the dollar and the increasing value of the dollar. And it does create disadvantages for competing domestic producers. And these increases in imports have come in addition to the investment in increased production that many of these companies have made in the United States in domestically assembled vehicles. But a lot of what’s going on in the auto industry can be viewed through the parts sector.

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In the auto parts sector, there is tremendous price competition that’s going on. Companies are competing ferociously for business. And the assemblers are putting tremendous pressure on them to lower their prices.

Now, if you are an American parts company and you’re figuring out what you’re going to do over the next period of time, your choices are to invest in new technology and more efficient operations in your US production facilities, or you can buy or build capacity abroad and ship those products back to the United States, as well as just placing exports from your current domestic facilities.

Now, given the strength of the dollar, the lengthy time during which the dollar has been strengthening and the continuing mantra from the administration despite maybe some slight lessening in the consistency and single-mindedness of a strong dollar is good for the United States, a US company is likely to think, well, what are the risks of going abroad taking advantage of this price advantage from imports and the low cost of investing abroad as a result of the exchange rate?

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This is an edited version of the second of five speeches given to the Economic Strategy Institute Derivatives Study Center forum: "Is the value of the dollar harming the global economy?" at the National Press Club on Thursday, July 26, 2001. Click here for the full transcript.



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About the Author

Steve Beckman is Assistant Director of United Auto Workers.

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