Apr 28 2008
Does the weak dollar help US manufacturers?
Published by Jason Welker at 3:12 pm under
Technorati
Flickr
del.icio.us
Ice Rocket
WikipediaYes, but it’s a bit more complicated than it might seem at first. This podcast looks at the impact of the falling dollar on the aerospace industry, in which manufacturing for the industry’s largest firms is sourced to hundreds of smaller companies each with factories in countless countries from North America to Europe to Asia.
The recent fluctuations in the US dollar exchange rate has wreaked havoc for firms located in the US and trying to compete in this competitive market. In some cases, the outcome has been positive, but as you’ll hear, not always.
Listen to this podcast then discuss the questions below:
Discussion Questions:
- How has the weaker dollar helped the Connecticut firm Kamatics?
- How has Kamatics been hurt by the weaker dollar?
- Why do fluctuations in the dollar make “business more unstable”?
- How does the impact of currency swings become more ambiguous “as the economies of the world become more intertwined”?
- Why did EchoAir stop manufacturing products in Romania? What impact would a revaluation of the Chinese Yuan have on EchoAir’s current manufacturing decisions?
About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. Jason was an international school student in Malaysia before studying economics at Seattle University then earning his Masters in Education. He calls Seattle and Northern Idaho home. In addition to maintaining an economics wiki and this blog for economics student and educators, Jason also gives presentations on using Web 2.0 tools in education at workshops and conferences around the world. His economics wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards". 
![Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything](http://ecx.images-amazon.com/images/I/51Z1scnqz1L._SL160_.jpg "Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything")
![The World Is Flat [Updated and Expanded]: A Brief History of the Twenty-first Century](http://ecx.images-amazon.com/images/I/410FGAGYGPL._SL160_.jpg "The World Is Flat [Updated and Expanded]: A Brief History of the Twenty-first Century by Thomas L. Friedman")
I’m surprised nobody has posted on this blog yet, but I’ll claim it first:
A weaker dollar has meant relatively cheaper products, which means a lot as the firm ships out around 1/3 of products. With deprecation the dollar, the value of exports is now cheaper and more attractable than competing European firms.
In the long run fluctuations in currency makes business unstable. Also prices were generally set a long time ago, so currency swings have not helped. In addition plants in Europe have had increased labor costs from the increase in the value of the Euro relative to the dollar.
Fluctuations in the dollar make business more unstable because the price of something is always changing. Therefore, one day you could get a great deal on something while on another day you might feel like you are getting scammed.
Currency swings are becoming more ambiguous because they generally do not have a large impact on large companies that are spread out in many countries across the world. However, they do have an effect on small and large companies and they may significantly hurt or help them.
Echo Air stopped manufacturing in Romania because what was originally cheap labor there had become too expensive. Largely because Romania switched to the Euro, it was difficult to for Echo Air to keep up with the rising labor costs. And now that the Yuan seems to be increasing in value Echo Air, may reconsider keeping China as its base of operations and move to a country that offers cheaper labor.
Thanks Michael! I figured the FIVE discussion questions scared people away! That was my bad! Good answers, though!