“YANKEE, STAY HOME” is what the world’s currency markets are trying to tell us, as the dollar sinks to a level where it takes $2 to buy one British pound, and over $1.30 to buy a euro. And if you’re thinking about a major purchase of a made-somewhere-other-than-the-U.S. product, think again. The flip side of that bad news is that America’s exporters are cheering, while countries that have been counting on the United States to be the world’s consumer of last resort are no longer so sure that they want us to cut our trade deficit. And Europeans with their newly powerful pounds and euros are finding that shopping here is so cheap that they can fly over, do their Christmas shopping in New York, and more than cover the cost of their airplane tickets.
The world has long urged America to get its trade deficit under control. Now might be the time. And the rest of the world is already wishing for the good old days of American profligacy. Economists are generally agreed that if the United States is to bring its trade deficit down from over 6.5 percent of GDP to a sustainable 2 percent, the dollar will have to fall by about 40 percent. That means that Britain’s exporters–America is their biggest market–would find themselves trying to persuade Americans that the Jaguar that has been selling for, say, $80,000 is still a good buy at $133,000, and that a bottle of 18-year-old Macallan’s Scotch that now retails in America for about $140 is worth sipping even at a price of $230. German exporters would also find life unpleasant. The $100,000 Mercedes would cost $166,000. Italy might find that American tourists willing to pay, say, $200 for a hotel room in Venice, would decide that $320 is so stiff that a vacation in Las Vegas, with its faux canals, will have to do. And the French, vocal critics of the U.S. trade deficit, are now calling for “collective vigilance” to stem the fall of the dollar, which is making it difficult for their winegrowers to peddle their wares in America.
