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July 1991, Vol. 114, No. 7
Dollar's fall boosts U.S. machinery exports
Jill Craven and Allan Gochenour
After appreciating for much of the first and part of the decade, the U.S. dollar turned around and, in March of 1985, began a steady course of depreciation against the currencies of several of the Nation's leading trade partners. (See chart 1.) The 35.8-percent fall in the dollar's trade-weighted value between March 1985 and the end of 1990 had a substantive impact on both price movements and trade volumes of U.S. imports and exports.1 One sector of the U.S. economy that clearly demonstrates these effects is the machinery and transport equipment industries, the focus of this article.2 These industries make up more than 47 percent of the total dollar value of U.S. imports and exports.3
The dollar's depreciation elicited different responses from U.S. and foreign producers. In general, foreign producers of machinery and transport equipment attempted to offset the effects of their currencies' gains by keeping selling prices relatively stable. U.S. manufacturers, however, allowed currency shifts to make their goods less expensive in foreign markets. This triggered a surge in U.S. exports of machinery and transport equipment which helped reduce, and in some cases reverse, trade deficits in these industries. The export growth experienced by machinery and transport equipment industries fueled a considerable improvement of the U.S. merchandise trade deficit from 1985 to 1990.4
This article uses several statistical measures produced by the Bureau's International Price Program to describe developments for individual industries and to show the apparent effects that dollar depreciation had on prices and volumes of internationally traded machine goods from 1985 to 1990. Such measures as dollar price indexes, average exchange rate indexes, foreign currency indexes, and pass-through rates are analyzed for five major industries: computers, telecommunications equipment, specialized and general industrial machinery, and motor vehicles.
This excerpt is from an article published in the July 1991 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 The Bureau of Labor Statistics International Price Program calculates average exchange rate indexes that are weighted bilaterally against a basket of 40 foreign currencies for each corresponding one- and two-digit SITC (Standard International Trade Classification). This particular figure represents the average exchange rate shift for all imported commodities, excluding fuels, from March 1985 to December 1990.
2 The machinery and transport equipment industries include: power generating machinery and equipment, specialized industrial machinery, metalworking machinery, general industrial machinery and parts, office machines and computers, telecommunications equipment, electrical machinery and equipment, motor vehicles and parts, and other transport equipment (excluding aircraft).
3 U.S. Bureau of the Census Online Information (Compro).
4 Ibid. Through the end of 1990, export growth in the machinery and transport equipment industries accounted for all of the improvement of the U.S. merchandise trade deficit excluding fuels.
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