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The Cutting Edge^™ December 2004

International Business Development

The Dollar is Dropping!
By Harold Zassenhaus, WMMA Export Director, zemg@erols.com

It's the flavor of the month whether you subscribe to The Economist, read the Wall Street Journal, watch CNN or subscribe to any number of economic/business newsletters. The EU and bankers in Germany and France, among others, have hinted that something must be done to prop up the value of the US dollar or at least weaken the value of the euro. The WMMA, through the Sound Dollar Coalition, has been lobbying the administration hard to caution our allies not to intercede, but to allow supply and demand forces deal with currency values. I urge each WMMA member to contact their Congressional Representative as well as administration officials to do likewise.

It's important to understand that the decline in the dollar's value (9% since August) is not the problem. In fact, the dollar has more to go if it is to reflect trends of the past 14 years.



"Most press reports and commentaries simply don't reflect reality, ignoring broader historical context and focusing only on the dollar's recent movement," stated Pat Mears, NAM's Director of International Commercial Affairs. "Analyzing the dollar's recent decline? is like evaluating the stock market with the tech-bubble peak of the late 90s as a benchmark." From 1997 to 2002 the dollar soared 25 percent against a basket of currencies the Federal Reserve Board uses to assess its relative value. "That surge was largely responsible for a sharp decline in U.S. exports and a skyrocketing U.S. trade deficit -- from $180 billion to $600 billion in only seven years," states Mears. The dollar is still valued 7% higher than it was in the 1990's.

The problem, as the WSJ stated recently, is "the world economy is out of whack". The US has found a way to live way beyond its means. Interest rates have remained low because overseas governments and institutional investors have been happy to purchase our government debt as well as substantial amounts of corporate equity. Asian central banks in particular have been buying our debt. It is now edging close to the $2 trillion level. The demand for the US dollar has partially resulted in low domestic interest rates which in turn have meant US consumers can borrow more, thereby increasing their debt. The US government, as you know, has been acting in the same manner.

Low interest rates and a historically high dollar value have fueled large and growing imports. The trade deficit is estimated to reach $670 billion in 2004 or 5.7% of GDP. According to many economists, the current account deficit is at a level which is unsustainable, especially in this environment in which foreign owned assets in the US far outweigh US assets abroad.

Other countries have gained from our actions as well. The European economies have been racking up current account surpluses, compensating for lackluster domestic consumer spending. And Latin American and Asian economies have jump kicked their economies by relying on exports. In fact China, Japan and Korea have gone farther by either pegging their currencies to the US dollar or by interceding in currency exchange markets to ensure their currencies remain weak so low export prices to US consumers can remain.

For awhile, everyone seemed to be content, except of course those Americans who lost their manufacturing jobs to countries which could offer their employers a low wage cost alternative, and the US manufacturer which found itself unable to compete with low cost products entering the US.

At some point the pendulum had to move to a more balanced global economy. Fed Chairman Greenspan noted recently, "A diminished appetite for adding to dollar balances must occur sometime." We are now seeing the beginning of an adjustment through the value of the US dollar. Given our huge current account deficit and our inability to effectively address it through asset holdings abroad, my guess is that the dollar will continue to fall at least to historical levels. It will not be a quick decline otherwise it would wreak havoc in the world market; but decline it should.

In addition, the US government and some of our allies are beginning to pressure China to ease their control over the US dollar/China yuan exchange rate. The WMMA has been a forceful player in the push to get the administration to deal with the issue and will continue to do so. Likewise, there is pressure being applied to the Japanese and other Asian nations to cease their intervention in currency markets designed to keep the value of their currencies low.

Dipping Dollar Provides WMMA Member Potential
In this environment, WMMA members have an opportunity to expand sales abroad. WMMA members that have been active in the international market should be able to capitalize on this powerful ally of a declining dollar. Those that have stayed away from developing an international marketing plan now have a window of opportunity. Otherwise they run the risk of being shut out.

The WMMA's International Business Development Committee (IBDC) has developed an expanded trade program to assist members develop a marketing plan and effectively enter promising foreign markets. By the end of the year, we will launch an "Exporters Manual" full of information and relevant tips geared to assist members in navigating international waters. In addition, we are updating our International Distributors Directory, a listing of over 400 international woodworking equipment and cutting tools dealers in over 48 countries. The Directory includes contact information as well as a listing of lines carried, where known.

Furthermore, we have recently expanded our subscription to a very powerful database of trade statistics. An expanded report on trade flow was the subject of last month's Cutting Edge article. On the committee page, http://www.wmma.org/members/inter_bus.cfm, scroll down to "Global Trade in Woodworking Machinery and Wood Products" for a series of tables on woodworking equipment and wood product trade flows. We have access to the latest import and export statistics of 47 of our major trading partners. The 47 countries account for virtually all trade in woodworking machinery and over 90% of trade in furniture, wood products, lumber and veneer. As an example, say you are a manufacturer of tenoning equipment and you want to know which countries are major producers of doors, windows and kitchen cabinets. The WMMA can now provide you in a matter of hours a list of the world's largest exporters of windows, doors and kitchen cabinets through the 3rd quarter of 2004 AND give you growth rates for the past 5 years. Want to know which countries are the fastest growing suppliers of wood furniture? No problem. Want to know where Germany is sending its machining centers? Again, no problem.

The WMMA is also expanding its participation in important international trade fairs. We will have a booth on the exhibit floor of Ligna, the world's largest woodworking industry trade fair being held next year in Hanover, Germany. For only $200, you can share the booth, gain exposure to the world's buyers and dealers, hold meetings, have access to translators and, through our network and the experience of your colleagues, we are able to easily reserve accommodations. To learn more about Ligna, click http://www.wmma.org/members/secureDocument.cfm?docID=221 We are trying to organize pavilions in 4 additional trade fairs which means that with minimal hassle, you can begin marketing in some very promising markets. To learn more see the related article in this month's issue entitled "2005 International Trade Opportunities" or contact me for additional information.

Finally, members of the IBDC as well as me are available to assist you with your international marketing program. Go to http://www.wmma.org/members/inter_bus.cfm
for a listing of IBDC members. Give anyone of us a call for advice. Now is the time for you to increase your efforts to increase sales overseas, broaden your revenue stream, flatten out your business cycle and learn more about industry trends.

If you haven't witnessed it yet, you will see that your foreign competitors will be squeezed due to higher importing costs resulting from a drop in the US dollar's value. This may happen in the US as well as third countries. You may see your domestic sales increase. But, I urge you not to continue to be dependent upon the US market; not to be content with growing domestic sales or even a growing US market share. You have an opportunity to capitalize on this dollar trend; it may not come again for a long, long time. Laying the groundwork now could pay handsome and growing dividends in the future.

Table of Contents
How are Hardwood Forests Doing?
Tort Reform
The Dollar is Dropping!
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WIC 2005 to Offer Outstanding Industry Education, Networking Opportunities
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