Jerry Jasinowski bears little resemblance to Bruce Springsteen. Even so, it was tempting to envision the National Association of Manufacturers (NAM) president singing "Born in the USA" last week as he stepped into the glare of television cameras.
Jasinowski, putting on his best populist, blue-collar, common-man face, held a press conference to protest the strong dollar, which he claims is hurting US manufacturers. "It's out of balance by 25 to 30 percent," Jasinowski said. Because the "overvalued" dollar is putting US exporters at a "devastating" competitive disadvantage against foreign producers, he said, the White House should weaken it. That would give a boost to the "Made in the USA" label.
The NAM's devalue-the-dollar lobbying campaign falls prey to some basic misconceptions about the US economy in the 21st century, observers point out. One, that exchange rates can make or break US growth. Two, that a weaker dollar is better for the ongoing expansion than a strong one. And three, that manufacturers have enough clout in Washington to change US currency policy.
Currency traders who sold dollars on the NAM's complaints might also want to keep these things in mind.
Treasury Secretary Paul O'Neill -- who's the boss in this case, not Springsteen -- is right to have "every confidence that American businesses will succeed" with the dollar at current levels, as Treasury spokeswoman Michele Davis said he does. Making O'Neill's stance all the more significant is the fact that he ran aluminum giant Alcoa Inc for 13 years before taking the reins at the Treasury. If anyone in the White House would be sympathetic to manufacturers, it's O'Neill. The NAM can't be happy about getting the brush-off from their guy in Washington.
O'Neill's got it right. Just as his predecessors Robert Rubin and Lawrence Summers understood, the US needs a strong dollar, not a weaker one. In the age of globalization, capital flows brought in by a firm currency can be more important than the increased trade afforded by a softer one.
While the NAM represents 14,000 companies, the broader economy is better served by a muscular buck.
The world's largest economy needs capital to support a stock market that's playing an unprecedented role. Since more than half of American households have a stake in stocks -- many opting to keep savings in equity mutual funds rather than bank accounts -- the market has never been more important to the nation's growth prospects. Capital also is needed to hold down interest rates.
That boosts growth and helps companies raise money in the bond market. The firm dollar also is keeping inflation under wraps, making the US Federal Reserve happy.
"US authorities can't afford a sharply weaker dollar and they know it," explains Callum Henderson, a currency strategist at Citibank in London. "For one thing, with unit labor costs rising and oil prices high, it could be inflationary. Second, the US asset markets need a stable currency. Dollar weakness could feed through to US asset market weakness, quickly becoming a vicious circle." The mushrooming current account deficit leaves the US Treasury with even less choice in the matter. The trade gap, which is approaching a record 4.5 percent of gross domestic product, means the US is more dependent on foreign money to fund its economy than ever before. Bottom line: A firm dollar isn't a luxury for Washington, but a necessity. "The benefits of a strong currency for our country far outweigh the costs," Lawrence Lindsey, President George W. Bush's top economic adviser, wrote in The International Economy magazine last April.
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