Oregon Office of Economic Analysis

I know it was supposed to be a two part export series, but I think a quick follow-up is in order. Think of it as an extra special bonus post. This post has to do with the so-called terms of trade, or exchange rates. Over the past 18 months or so both the U.S. dollar and the Oregon trade-weighted dollar (focusing just on our top 15 export destination countries and adjusting for inflation across countries) have appreciated about 18 percent. Much of this increase is in the past year, starting right around when the price of oil plunged.

The basic story here, as I mentioned to OPB, is this:

“We have a strong U.S. dollar that makes Oregon products and U.S. made products more expensive to foreign buyers,” said Lehner.

“It also makes the products from foreign countries cheaper for us, so we see some more imports. And so that kind of is going to weigh on our export outlook,” said Lehner.

The dollar indexes shown above were before the recent Chinese yuan depreciation this past week. The U.S. dollar strengthened further following that event, the Oregon dollar even more so given our stronger ties to China. Folks that are much smarter than me had some good commentary on the Chinese devaluation. See Neil Irwin at the NYT for a broader perspective and Univ. of Wisconsin professor Menzie Chinn, to name two.

One other place the strong dollar will show up, beyond stronger imports and weaker exports, is in the financial earnings for multinational corporations. While foreign earnings (those made from goods sold outside of the U.S.) do not necessarily need to be brought back into the U.S., the businesses do need to report on how much they made outside the U.S. In calculating those foreign sales back into USD, the numbers appear somewhat smaller due to the strong dollar.