The resurgent dollar promises cheaper European vacations, lower inflation and new leadership for the U.S. economy, but it is making life harder for some exporters.
"At least 80 percent of what we ship out of here is into the export market, so any movement in the dollar affects our business dramatically," said Peter Reid, president of Titan Steel Corp. of Baltimore. "I hope very much that the dollar will lose some of its steam."
Having wilted for more than a decade, the dollar has gained new temper this year against most European currencies and the Japanese yen. Credit low U.S. inflation, a levitating stock market and interest rates that, while low by recent American standards, look good to overseas investors.
But dollar power has spelled involuntary, 15 percent price increases in the last year for American companies selling to such places as Germany, Belgium, Japan or Russia. The dollar has come on especially strong since New Year's, rising 7 percent against the yen and 9 percent against the German mark and most other European currencies.
The spurt has prompted fear in some quarters that overseas producers will gain new leverage in U.S. markets and that America's and Maryland's impressive export gains during the 1990s will be more difficult to extend.
"It certainly should have some impact," said Rick Egelton, deputy chief economist for the Bank of Montreal. "It's been quite a sizable appreciation. It's not something that's going to push the economy into recession, but we think it's going to have a restraining impact on U.S. growth."
The strong dollar will have the same economic braking effect as a hefty, percentage-point increase in long-term U.S. interest rates, Egelton calculated.
Many analysts, however, caution against too much hand wringing.
Worth 124 yen these days, the dollar still is about half as expensive vs. the Japanese currency as it was in the early 1980s. It has been relatively stable recently against currencies in Mexico, China, Taiwan, Indonesia and other places that have employed cheap labor to fuel the U.S. import boom. And it has actually fallen in value against the currencies of Canada and Britain.
"Certainly, an appreciating dollar is not good for Maryland exporters," said James Hughes, director of international trade for Maryland's economic development department. "But the dollar has not appreciated to all markets. And,if you were to look at the majority of places where Maryland exports go, the dollar has stayed about level or depreciated."
Maryland exports were worth $6.2 billion in 1995, the most recent year for which figures are available. Canada accounted for more than $1 billion of that; Japan, Britain and Taiwan for between $400 million and $500 million each. Maryland still should be able to hit Gov. Parris N. Glendening's goal of $9 billion in exports by 2000, Hughes said.
The prices of national currencies work like those of any other commodity: when demand and buying rise, so does price. And demand for the dollar is up. One reason: 1-year Japanese government bills pay about 0.4 percent annual interest; 1-year U.S. Treasury bills pay 5.4 percent. That gaping spread has unleashed a flood of Japanese investment in dollar-denominated bonds.
The soaring stock market has attracted overseas investment, too. And central banks in development countries have joined the dollar-buying spree, increasingly stocking their reserve vaults with greenbacks.
A strong dollar isn't all bad.
It gives U.S. tourists more buying power, and travel agencies are hoping it will stoke European trips this year. "I think it will," said Mary Joan Levin, president of Mount Royal Travel in Baltimore. "We've been doing a lot of travel to Europe. It's been up."
And a robust dollar helps to quell inflation, as goods imported from Japan and Europe become cheaper.
But it also alarms U.S. producers. The American auto industry still has painful memories of the early 1980s, when a healthy dollar abetted huge increases in the sales of Japanese-made cars and other products in this country.
Manufacturers are relieved by recent signs from international monetary leaders that they will not work to drive the dollar higher, said Jerry Jasinowski, president of the National Association of Manufacturers.
"The appreciation of the dollar, outside of the yen, has not been extraordinarily large and has not become a crisis issue," said Jasinowski, who is concerned about the effect of the cheaper yen and its potential to widen the U.S. trade deficit with Japan.
Some analysts, though, think that U.S. producers are in much better shape to compete here and abroad than they were a decade ago. U.S. companies are more efficient, having invested billions in new technology and work processes, they said.
Among Maryland exporters, "I'm not hearing a lot of moaning and groaning yet, which is very interesting," said Penelope Menzies, director of Maryland's World Trade Center Institute.
For example, Baltimore's General Motors plant is a major state exporter. But the percentage of its vans going to Japan and Europe is quite small, a spokesman said. Most are sold in North America.
Baltimore's Waverly Inc., a substantial publisher of medical books overseas, hasn't changed its pricing or currency-hedging strategies as a result of the dollar's strength, said Carolyn Donohue, president of its international unit.
But for other exporters, the change is acute.
At Titan Steel, which buys tin-plated steel from major mills, customizes it and resells it, Reid expects exports to fall by 20 percent this year.
Of course, Titan and other producers can comfort themselves with memories of a few years ago, when the dollar's decline seemed endless and U.S. products became offshore bargains.
"And now we're in the thin times, and it really is putting us under a lot of pressure," Reid said. "But we'll be back again."
Pub Date: 2/18/97