Is The Depreciation Of The Dollar Good Or Bad For The United States?

The company's current forecast assumes that the US dollar exchange rate will basically remain unchanged in the next few years.

However, the IHS model shows that if the US dollar further depreciated by 20% in the next eight quarters, exports in 2015 would be 12% higher than that in the non devaluation situation, and the unemployment rate would be 5.3%. Assuming that the US dollar exchange rate is flat, the unemployment rate will be 6.7%.

According to these two assumptions, consumer price increases will be 3.3% and 2% respectively in 2015.

It may sound desirable to use this model to predict the decline in the unemployment rate, which is predicted by inflation.

However, the model is not perfect. No one can guarantee that the depreciation of the US dollar will bring 20% of the above results.

{page_break}

A slight increase in inflation may frighten bond investors.

If inflation goes up, they may ask for higher yields from bonds to compensate for the greater risk of inflation weakening returns.

If the dollar falls too much, large foreign investors in US Treasuries may also shrink and force the us to pay higher interest rates.

Higher borrowing costs may weaken the economy and push up unemployment.

Zandi said that as long as the annual decline in the US dollar exceeds 5%, the economy may be more of a problem than an advantage. This decline may indicate that global investors are withdrawing from US stocks, bonds and other assets.

In addition, if the dollar starts to depreciate sharply, it may be difficult to stop the car.

Currency devaluation may cause panic, leading to a fall in the value far below what many economists consider reasonable value.

Even so, some US manufacturers still hope that the US dollar will depreciate sharply against the RMB. The US dollar is a very important exchange rate to the RMB, because China is the second largest trading partner after Canada.

The RMB exchange rate is strictly controlled by the Chinese government.

Dimico, chief executive of Nucor Corp., a steel manufacturer in North Carolina, said that China is providing "substantial" subsidies to its exports by lowering the value of the renminbi. (Daniel DiMicco)

The Chinese government's response to this allegation is that they have allowed the RMB exchange rate to have more flexibility.

Dimico expressed support for a long-standing legislation in the US Congress.

The legislation proposes to increase import tariffs on those countries that are supposed to deliberately lower the value of their own currency, which may provide a way of revenge for the US Department of Commerce.

This legislation is often supported by companies such as Nucor who do most of the manufacturing activities in the United States and face pressure from China's imports.

American companies with global manufacturing businesses are usually more vigilant against punishments for China.

William Lane, director of the Washington office of the Caterpillar Inc., said that this is a departure from the real problem of American competitiveness, "said Inc..

Nearly 70% of the products of the building and mining machinery manufacturers are sold outside the United States.

He said that instead of getting entangled with China on currency issues, the United States should focus on reducing corporate taxes and regulation, improving roads, ports and other infrastructure and striving for free trade agreements. It is best to solve the currency problem through multilateral organizations and quiet diplomacy, rather than threatening to launch a trade war.

National Association of Manufacturers has decided not to take a stand on the issue because members are too divided about the money legislation.

At present, Caterpillar and other quiet diplomacy supporters seem to have the upper hand.

Global manufacturers did not pin their fate on any currency.