That's where the NYT sticks its head back in it's armpit. Sure, everyone says weak dollar = more exports but it doesn't and they're wrong. Exchange rates do not affect the balance of trade.
Exchange rates do not affect the balance of trade.
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? How can they not? If our currency becomes 10x stronger, all foriegn goods are cheap. If our currency becomes 10x weaker, our goods will be a bargain internationally.
So in essence, with all other factors remaining unchanged (the economic impossibility upon which all economic theory is based), a weaker dollar will cause our trade deficit to decline. However, the trade deficit isn't our problem.
Having a trade deficit is a good thing because it sends dollars into the rest of the world - the goal is to have those dollars reinvested in American capital markets, businesses, entrepreneurial ventures, etc., within the US. The problem now is that this Administration is doing everything in it's power to scare off this investment. Currently, $500 billion per year is flowing out of the US, and none of it is coming back via investments. Foreign investors are hesitant to invest when they don't know what the tax rate is going to be for the next two years. So they continue to sit on these dollars and wait it out, hoping that the US will come to it's senses and decrease corporate and capital gains tax rates, and eliminates it's draconian restrictions on the movement of capital across the US border.
Of course they do!
Trade is determined by price differences. If the US dollar is overvalued (as it has been for much of the last 40 years), then American goods are more expensive abroad. It's what killed the American steel industry for Pete's sake.
Now, there's a lot we could do in the US to improve our competitiveness (lower taxes on profits and capital), but even those won't be able to overcome a high exchange rate. Now, don't get me wrong -- I do not agree with the current policy of deflating the dollar to drive its value down.
But a stable money supply combined with a balanced federal budget (no constant supply of Treasurys to sell abroad) would help bring our exchange rate back to some semblance of where it should be.
It would do wonders for the trade deficit, too.
On a local level, when the Canadian dollar is at par or above the greenback.
there is a big influx of Canadian shoppers into Buffalo snapping up deals.
Parking lots are said to be full of Ontario license plates.