The Dollar and Exports
Before we get to carried away about the impact of the weak dollar on US trade, and especially exports I suggest we look at some recent history. See the previous post. This chart has the dollar inverted, so remember the dollar was strong in the 1990s and weak since 2000.
What this shows is that real US exports grew at about the same rate in the 1990s period of a strong dollar as they grew in the weak dollar era of recent years. The only period of weak exports was during the world economic slowdown at the turn of the century.
When you look at the import side of the story the story appears similar. However, real import growth has been weaker in recent years than it was in the 1990s.
I’m posting these charts because I suspect that the dollar plays a decidedly secondary role to relative growth in determining US real exports and imports. I have not tried to quantify or test this feeling, but it makes me reluctant to get too excited about the impact of currency changes on trade. For example, in the 1990s real domestic demand growth averaged around 4% as compared to around 3% in the 2000s. Moreover, in the 1990s growth accelerated as the decade progressed while in recent years it has slowed. This is enough to account for a significant share of the slower import growth in the 2000s.
Moreover, in the 1990s economist were surprised by how small the impact of currency changes turned out to be. A major body of academic research found many reasons why firms have learned to get around the impact of currency changes.
I’m just warning to not expect too much from currency changes. you are liable to be disappointed.
Maybe we need to get a good econometrician like Menzie Chin at Econobrowser to comment on this.
Note the last months observations have not been updated in these charts.