CRN Research: Lower Dollar Won't Be Much Help For U.S. Technology Exports

It's true that the dollar has dropped significantly against the euro (the common currency used by most major western European countries) over the past year, and the British pound since the beginning of April. This has the effect of lowering the price of U.S. products in local currency terms in these markets, which makes these products more price-competitive against locally produced goods.

But economic growth has stalled in key countries that use the euro, such as Germany and France, and the specter of recession is rearing its ugly head. Even Britain, which has seen stronger growth than its continental neighbors so far this year, is forecasting slower growth in coming months. Lower economic growth tends to reduce the demand for imported products, and this effect could offset much or all of the positive impact of the lower dollar on U.S. technology exports. This is no small matter in a region that took in 21 percent of U.S. technology exports in 2002.

The situation is similar in Japan, where the dollar has dropped in value against the yen over the past year but the country remains mired in a decade-long recession.

China is one of the few bright spots for U.S. technology exporters, but not because of the falling dollar. China enjoys one of the highest economic growth rates in the world, in the range of 8 percent in inflation-adjusted terms. And the country's recent accession to the World Trade Organization has made it a more tempting target for international trade. But China also does not allow its currency to change in value against the U.S. dollar, and that makes U.S. exchange rate policies no help as far as technology exports to China are concerned.

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In Latin America, the dollar has dropped more than 10 percent in value against Brazil's currency since the year began, and has also fallen against the Mexican peso after peaking in early March. But economic growth prospects in this region remain cloudy. Some Mexican forecasters, for example, have recently lowered their estimates for growth this year.

Canada is one country in which the combination of the falling dollar, and relatively solid economic growth, could provide a fertile environment for U.S. technology exporters. The U.S. dollar slipped about 16 percent against the Canadian dollar in the first six months of this year, and Canadian economic growth continues to be one of the strongest among the industrialized countries, outperforming the United States. But here, as elsewhere, there is a caveat--the relatively small size of the Canadian market limits its potential as a source of growth for U.S. technology exporters.

John Roberts is CRN' s director of research. He can be reached at [email protected].