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Weakening dollar could boost Iowa exports


Iowa companies that sell overseas could see a spike in the demand for their products, and a corresponding jump in profits, if the dollar continues to drop in value relative to other currencies.

The dollar has lost roughly 40 percent of its value relative to the euro over the past two years. Since late last year, it has fallen about 17 percent. At about $1.17 per euro, the dollar’s value last week was even with the level at which the euro entered life a few years ago. More than 1,500 Iowa-based companies export products, according to the Iowa Department of Economic Development.

Iowa export officials said they haven’t yet seen any significant uptick in profits among Iowa exporters, but one is inevitable and could occur by the third quarter if the dollar remains at current levels or weakens further.

“It won’t show up right now, but there will definitely be a stronger demand for Iowa products,” said Kathy Hill, who runs the international marketing department at the Iowa Department of Economic Development. “I think it will show up in the third quarter.”

In late May, the dollar, which had been falling steadily as the U.S. economy continued to flounder, tumbled anew after several comments by Treasury Secretary John Snow. His comments, which included a remark that a falling dollar would benefit American exporters, have been viewed by currency traders as signs that the U.S. government is backing away from its long-held position of favoring a strong dollar.

The speculation centers around the idea that the Bush administration could be using a weakening dollar to boost American exports and thus jump-start the U.S. economy.

Regardless of the reasons, the falling currency value will be good for Iowa companies, Hill and others argue.

Iowa-based companies exported $3.3 billion in agricultural products in 2001, the most recent period for which complete statistics are available for that sector of the economy. Iowa companies exported $4.8 billion in manufactured goods and value-added food products last year.

The falling dollar will be particularly good for Iowa-based companies if it slips in value relative to the Japanese yen. Japan is the second-biggest buyer of Iowa products, behind Canada. Iowa’s biggest export to Japan last year was processed meats, followed by machinery, Hill said.

Iowa firms are certain to get a boost from the dollar’s fall relative to the euro. Germany and France are the fourth- and fifth-biggest purchasers of Iowa exports, according to the IDED.

“A lower dollar in relation to the euro or to a strengthening will be helpful for agricultural or high-tech exports; there’s no doubt about it,” said Tom Rial, director of the Iowa Export Assistance Center at the Greater Des Moines Partnership. “For Iowa agriculture products especially, a weaker dollar will have a positive short-term effect.”

The weaker dollar might also unlock some markets that had previously been unavailable to Iowa companies because transportation costs made Iowa products too expensive there, Hill said.

The issue is already getting a lot of attention from Iowa companies. During a recent discussion between IDED experts and businesses in Sioux Center, Marshalltown and Mount Pleasant, business leaders were full of questions about how a weak dollar would affect their companies and how they could protect themselves against volatile currency-market swings. Many Iowa businesses regularly using hedging techniques.

“They were looking at the opportunities that a low dollar represents, and they were also considering the challenges that come as a result,” Hill said.

Some of those challenges include difficulties for firms that import products. Prices would be higher and profits would be hurt. Other Iowa companies may import some components that are then incorporated into products that are sold abroad. In those cases, the advantages of a weak dollar could be canceled out, Hill said.

First to benefit will be manufacturers, including Maytag Corp., Hill predicted. Other companies likely to get a boost from the slumping dollar are soap and cosmetic maker Parachem Corp., turbine equipment maker Turbine Fuel Technologies, heavy equipment manufacturer Eagle Iron Works and vending equipment maker Servomatic Inc. International.

“I’ve followed the export industry for 20 years, and I can tell you that I love to see a low dollar,” Hill said. “Generally speaking, a low dollar is good for exports and it’s good for Iowa.”

A weak dollar:

A dollar that is declining in value relative to other currencies makes U.S. products cheaper overseas. The result is generally that U.S. exports increase, boosting profits for companies that sell their products abroad.

Eventually, higher demand for those products will put pressure on the dollar to increase in value because the rising exports will boost the U.S. economy, making investments here more attractive, and will heighten demand for dollars to pay for the exported products. That is what should happen, according to classic economic theory.      Not all is positive with a weak dollar, however. Foreign investors think twice about the stability of the U.S. economy when making investments here. Second, imported items become more expensive, which dampens demand and, if it persists, could hurt Americans who work for foreign companies.

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