Sign Up For Our Mailing Lists

InsiderOnline Blog: December 2006

The Price of Adjustment

Hudson’ Irwin Stelzer explains why, in spite of our trade deficit, nobody wants a precipitous fall in the dollar:

Economists are generally agreed that if the United States is to bring its trade deficit down from over 6.5% of GDP to a sustainable 2%, the dollar will have to fall by about 40%. That means that Britain’s exporters—America is their biggest market, worth £31 billion—will find themselves trying to persuade Americans that the Jaguar that has been selling for, say, $80,000 is still a good buy at $133,000, and that a bottle of 18-year-old Macallan whisky that now retails in America for about $140 is worth sipping even at a price of $230.

German exporters will also find life unpleasant. The $100,000 Mercedes would cost $166,000. Italy might find that American tourists willing to pay, say, $200 for a hotel room in Venice, would decide that $320 is so stiff that a vacation in Las Vegas, with its faux canals, will have to do. And the French, vocal critics of the US trade deficit, are now calling for “collective vigilance” to stem the fall of the dollar, which is making it difficult for their winemakers to sell in America.

Posted on 12/07/06 03:11 PM by Alex Adrianson

Heritage FoundationInsiderOnline is a product of The Heritage Foundation.
214 Massachusetts Avenue NE | Washington DC 20002-4999
ph 202.546.4400 | fax 202.546.8328
© 1995 - 2015 The Heritage Foundation