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Historical

The Sky… err Dollar is Falling…

While the falling dollar may be welcome news, one aspect that is often overlooked is the relationship with China. Even with the steep decline of the dollar, though, not all import prices are headed higher — and not all of the U.S.’s trade problems will be resolved. In part, that’s because the dollar’s fall has […]

While the falling dollar may be welcome news, one aspect that is often overlooked is the relationship with China.

Even with the steep decline of the dollar, though, not all import prices are headed higher — and not all of the U.S.’s trade problems will be resolved. In part, that’s because the dollar’s fall has been uneven and mostly concentrated against the euro. Asian nations have acted to prevent their currencies from appreciating against the greenback. Japan sold $20.5 billion worth of yen in the first quarter in a move that limited the dollar’s slide. And China, whose first-quarter trade surplus in goods with the U.S. soared from $7 billion in 1996 to $25 billion today — giving it the world’s biggest surplus with the U.S. — has kept its carefully controlled currency steady against the dollar. That means there’s no pressure on China to raise the prices of its exports. And if those prices don’t rise, there’s no reason to believe U.S. buyers will cut back on their purchases of Chinese goods or that the trade surplus will diminish.

While there is a clear benefit to having increased overseas profits, especially in Europe, the benefits of a weaker dollar will be mitigated considerably by the yuan-dollar peg.

So, you don’t have to hurry out to pick up your new electronics gear, because prices aren’t getting any more expensive… Too bad for tech.

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