The dollar"s decline: Good or bad?

December 4, 2007

By:

Jean-Guy April knows the value of a dollar, and in this case more value isn"t always better.


April owns April Services Techniques, a metal fabrication consultancy in Montmagny, about 50 miles northeast of Quebec City, and many of his clients are feeling the pain as the dollar falls and the Canadian loonie (dollar) hovers high, hitting a record Nov. 7, according to Bloomberg. At this writing, the dollar and loonie sit at parity, something that hasn"t happened in more than three decades.


With the value of the [Canadian] dollar to the U.S. dollar, we"re losing a lot of business and jobs, April said. Nobody knows how long it will take to reverse this. My clients are suffering."


About 80 percent of Canadian exports go to the U.S., Bloomberg said, but thanks to a Canadian loonie that has gained 17 percent against the dollar, those exports are now more expensive; hence, fewer people and businesses here want to buy those products.


By all benchmarks Canada remains our largest trading partner. Think Americans buy more from China than anywhere else? Think again. According to the Commerce Department, more than $2 billion passes between the U.S. and Canada every day. The Census Bureau said that in 2006 the U.S imported more than $302 billion worth of goods from our northern neighbor; compare that with the $287 billion we imported from China during the same time period.


Canada, unlike China, actually buys a lot of our products. For years the trade between the two North American countries has remained somewhat balanced, though the falling dollar will undoubtedly make the scale shift. Bloomberg reported that Canada"s trade surplus slipped to a nine-year low in September, when the country exported $2.7 billion more than it imported.


And Canadian firms are feeling the pain. Consider Toronto-based Onex Corp., one of Canada"s largest companies, parent of such U.S. manufacturers as Spirit AeroSystems and Hawker Beechcraft, and metal service center Tube City IMS. For the third quarter Onex reported its largest net loss in three years, $77 million, largely due to foreign currency translation losses on U.S. cash and securities held, the company said.


Ken Lewenza of the Canadian Auto Workers union put it dramatically: The squeeze is on, and our lives are miserable, he told Bloomberg.


Without question, the soaring Canadian dollar doesn"t bode well for Canadians for the short term. But is the U.S. dollar"s decline good for U.S. manufacturers? That"s a complicated question. Economies across the globe are intertwined more than ever, and this makes the currency situation not so black and white.


For instance, bearing-maker Kamatics, Bloomfield, Conn., now has a price advantage because our costs are the same, but our price is now 40 percent less than it was just three years ago against the euro," company President John Kornegay told National Public Radio. But then again, the company also recently built a plant in Germany, a place where a weakening U.S. dollar doesn"t help.


During the interview, Kornegay aptly summed it up: "In the short run [currency fluctuations] can help or hurt somebody pretty badly. In the long run they don't help anyone; they just make business more unstable."



FMA Communications Inc.

Tim Heston

Senior Editor
FMA Communications Inc.
833 Featherstone Road
Rockford, IL 61107
Phone: 815-381-1314
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