A strong dollar is all good and well, but (Yuan-lite trade-dumpin' China aside), hasn't the slide of the dollar taken a big bite out of the huge trade deficit everyone was crapting in their pants about a decade ago? Don't get me wrong, I hate the current ForEx rate on a very palpable personal level (I travel a lot), but the mighty greenback of the 80s-90s really hammered our export sector...or so was the widespread belief at the time.
I don't want to go into a full dissertation, but will address each of your paragraphs separately.
Short answer – you can't export what you don't make, and, even though the $US has weakened, it is still being manipulated much stronger than it should be.
Take a look at the
annual trade deficits on a calendar year (as opposed to fiscal year) basis. No, I don't know why the US Census keeps track of the trade deficits on a calendar year basis.
Annual Trade Deficits in billions of $US:
1992 – 39.213
1993 – 70.311
1994 – 98.493
1995 – 96.384
1996 – 104.065
1997 – 108.273
1998 – 166.140
1999 – 265.090
2000 – 379.835 (869% increase during the Clinton administration)
2001 – 365.126
2002 – 423.725
2003 – 496.915
2004 – 612.092
2005 – 714.371
2006 – 758.522 (100% increase during the first 6 years of the Bush administration)
2007 (first six months) – 352.748
The dollar has declined dramatically against most currencies since 2000 (71% against the euro, 300% against the ruble), and the trade deficit, as a percentage, seems to support that a weakened dollar does reduce the rate of grow of a trade deficit, but did nothing whatsoever to cause a real reduction in the deficit.
One would think that with American goods becoming relatively cheaper in foreign markets, we could export anything we manufacture. That's the problem, we don't manufacture squat. We've idiotically moved toward a service economy, and it's much more difficult to export services.
Manufacturing is now 12% of our GDP, yet accounts for 2/3 of our exports. Most of our GDP is not subject to being exported. During the Clinton administration, I thought, economically, we were suffering through the worst president in history. But then Clinton was followed by the mother of all idiots.
Clinton's economy was ill-conceived. He, for whatever asinine reason, want to convert us from manufacturing economy (with relatively higher paying jobs) to a service economy (with relatively lower paying jobs). He embraced one of the worst ideas to ever come out or the republican think tanks, NAFTA. He loved the idea, but then, in Clinton's manipulation of the idea, made it several magnitudes worse. Although initially a republican idea, the NAFTA Clinton created is similar in name only. Then, he made our poorly conceived tax code, especially in its impact on manufacturing, even worse – pushing the envelop toward unbearable. Finally, by ignoring the potential of emerging markets (this is where Alan Greenspan joined with Bush and Clinton to create modern version of The Three Stooges), both the Clinton and Bush administrations were caught completely off-guard. The result? Manufacturing started to leave the country in droves. We cannot export things we don't produce. And, now, we even import basic needs.
For each of the last two years, for the first times in history, we, the world's breadbasket, have been a net importer of food! It makes you want to slap Bush upside the head (my theory is that it would sound eerily similar to the Liberty Bell).
What do we export? Military goods, airplane parts, and services. In fact, thanks to the declining $US, the exportation of services is the only area in which the trade deficit has been reduced even with the declining dollar. It's been relatively less expensive for foreigner to take vacations in the US, and that is the primary source of the reduction in the trade deficit over the past year. Thank goodness those highly paid bellhops, valet parking attendants, and hotel maids are benefiting from this economy. Meanwhile, we import clothing, food, electronics, toilet paper, auto parts, energy, and just about everything we use in everyday life.
Under Clinton's direction, the US Treasury started a strong dollar policy. This is a policy Bush has retrained. But, at least Clinton backed it with much more prudent fiscal policies. With the relatively slow growth in our deficits, while still needing to manipulate the $US, it didn't take as much to maintain a strong $US in the 1990's as it does today. Clinton desired a strong $US to ease the otherwise inflationary cost of daily needs of goods whose manufacture he intended to export under NAFTA.
Bush maintained the strong dollar policy, but it became more difficult to maintain that policy with his unconscionable deficits. Those deficits, oddly enough, are the reason he has desired a strong $US. The $US needs to be strong in order to attract foreign investment. But, with his deficits, it got so bad that in November, 2005, the Fed announced that it would no longer disclose the M3 money supply (which included $US held by foreign banks) after March 23, 2006. The economy, fundamentally, has not had much of a recovery from the 2000 market crash. Manufacturing jobs, for which compensation is 20% more than for all US jobs, have declined by another 18% since 2000. Bush has attempted to manipulate the $US by having the Fed, under the direction of the US Treasury, hike interest rates in a dying economy, in order to obtain foreign debt financing. It's failed miserably. We've been manipulating the $US, trying to strengthen it, and then complaining that China needs to permit the yuan to appreciate in order to match our manipulation. If we allowed the $US place itself in a free market, it would serve the exact purpose that are asking from China. Most central banks believe that if the $US were not being manipulated by the US, it would trade in a range of 1.60 to 1.70 to the euro instead of the 1.37 it is at today. But, we are in the position where we cannot allow that to happen, because we don't manufacture our daily needs. We have to import them. And, if we import them under a weak $US, we'll suffer devastating inflation.
The really sad thing is that, per wage earned, the American worker is still the most efficient and productive worker in the world. However, our unique tax code, having been manipulated in order to provide votes in order to achieve power for the politicians, more than offsets those efficiencies, embedding taxes into the production costs. Those taxes add an average of nearly 30% to the production costs, making the production of goods in America more expensive. In other developed countries, there are few if any taxes embedded in the production cost. They generally add a VAT (Valued Added Tax), which is a post-production tax, and which can be readily eliminated from exported goods. Our tax code does not permit any of the embedded taxes to be eliminated, and is keeping us from playing on a level field. With the promised benefits under various entitlement programs, and the tremendous increases required in order to pay for those entitlements, if done under the current system of taxation, it soon won't be worthwhile to manufacture anything in the US unless those items are also used in the US. We will not be able to compete at all in the exportation of manufactured goods.
