Richard Whalen

Authentic trends emerge very slowly, over several years or even a decade. Then we “discover” a seemingly “new” trend.

The extremely good, drawn-out “news” is that America has regained international trading competitiveness, with a much cheaper dollar. U.S. exports, which account for 10 percent of GDP, are surging while imports are stable. This year, the trade deficit, which hit a record $759 billion in 2006, will shrink back toward 2005-2004 levels. Half of U.S. imports, it should be noted, are energy products at prices set by the anti-competitive OPEC cartel.

Trade politics tends to bring out obsolete stereotypes. America’s export problems owe little to “lazy” union workers or “greedy” businessmen. The huge trade deficit has much to do with Washington’s neglect of the dollar’s external value in the fiercely cut-throat international arena.

Every foreign nation with a currency manages its value against the central currency, the dollar. The greenback is “pegged” to everything else through the manipulations of 130-odd central banks. The dollar floats in a sea of corrupted paper and takes its chances.

The obvious advantage to the U.S. of being the world monetary system’s central currency is that the U.S. can settle deficits and debts in the dollar in the money Washington prints. The glaring disadvantage: the dollar, as the system’s central currency, cannot be formally devalued, but must make it appear an unavoidable accident.

Over the past couple of decades, the dollar, quite deliberately, has been loosely managed to accommodate various crises that did not happen (remember Y2K?), as well as some that did, and surprises that turned out happily (including the peaceful integration of Russia and Eastern Europe into the free world’s economy).

Over this span, the dollar was permitted to drift upward in value and become increasingly overvalued.

This year, the U.S.’s broadest measure of our external debts, the current account deficit, rose above 6 percent of GDP, approaching a trillion dollars. International alarm bells rang. The coincidental collapse of junk “subprime” mortgage debts was blamed, and the dollar has been devalued. American tourists visiting gay Paris discover the pain of the $10 cup of coffee (no refills).

The external imbalances America permitted itself could be largely corrected in a couple of years. The internal imbalances, as in the depressed housing sector could take much longer. The current devaluation means the dollar’s external value would be abut 60-70 percent lower than a decade ago. This assumes, of course, that the rest of the world will continue its economic expansion and permit American exporters to enjoy their competitive advantage.

This assumes too much, I’m afraid. Highly export-dependent economies such as the European Union, Japan and China are working furiously to find non-market means to reverse America’s advantage through disguised protectionism. The trade game is unending. Never “won” definitely, it consists of relentless competition. America is competing again.