U.S. Battling Other Countries To Be Cheapest Source Of Goods

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Audie Cornish talks with Adam Davidson about the Labor Department's release of the import and export price indexes on Tuesday. The data underscore the difficulty of managing the U.S. economic recovery in the interconnected global economy.

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MELISSA BLOCK, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

AUDIE CORNISH, HOST:

And I'm Audie Cornish.

There is a global race on, an odd one. Countries are competing to be the cheapest source of goods. We're not talking about low-wage countries, like China or Bangladesh. No. This is a battle between Japan and Germany and the United States. And today, the Bureau of Labor Statistics revealed the latest scores in this race.

Adam Davidson with NPR's Planet Money team joins us to explain. And, Adam, just what are the scores so far?

ADAM DAVIDSON, BYLINE: Well, this month, like a lot of months lately, it's basically a tie. Let me explain what we're talking about here. Every month, the U.S. government releases what it calls the Import and Export Price Index. And this is normally one of those economic statistics that it's safe for pretty much everyone to just ignore.

But it's become really important. That's because the government looks at all the things we buy from the rest of the world - all the imports - and tries to figure out are they costing us more or are they costing us less than they used to, and then looks at all the stuff we export, all the stuff we sell to the rest of the world and asks the same question.

And so this month - and this has been happening steadily for many months and even years - the imports are cheaper. Our dollars buy us a lot more goods from overseas than they did a year ago. But at the same time, and this is the confusing part, our exports are cheaper too. Other countries are able to buy more American stuff. Their currency - their yens and euros and yuans - go farther too. It's a bit strange.

CORNISH: So just what are the stakes here? I mean, why would countries want to sell things for cheaper prices? I mean, doesn't that mean that they just make less money?

DAVIDSON: Well, right now, pretty much every big, rich, industrialized country is going through the same thing. They have high unemployment. They have an economy that's growing too slowly. They want jobs. They want faster growth. And one of the easiest ways to do that is to devalue your currency, make your currency worth less than other currencies. That's basically like giving a discount on all your goods to the rest of the world.

Like, if the dollar is weaker against the euro, then Boeing or California winemakers, or whoever it is, is able to sell stuff to other countries for the same dollar amount, but it's like it's a discount to Europeans and other folks.

CORNISH: So how is the dollar doing against the other major currencies?

DAVIDSON: Well, this is a really weird time in the history of the global economy. Most of the time, when one country is doing badly, there's at least a few other countries that are doing fairly well, and so you have this kind of natural process - the unhealthy economy, its currency falls in value and that allows the healthier economies to buy its goods at a discount that gooses the unhealthy economy and makes it do a little bit better. And then, eventually, that economy is doing well, its currency strengthens, and everything's balanced again.

But right now, we have this weird thing where pretty much everyone is doing badly all at the same time and in pretty much the same way. So weird things are happening. Like, over this past weekend, the G7, you know, the finance ministers of the seven big, industrialized countries, got together, and they said: Well, of all of us, Japan is really looking bad. So we're going to let Japan do a bunch of things to weaken the yen.

Yes, that'll hurt our American and European exporters, that'll give Japan an edge in that competition, but we're going to do it anyway because Japan's in such bad shape. So you ask how is the dollar doing? Well, if you just looked at the American economy, you'd think the dollar is doing pretty badly. But we're doing better than everyone else. So relatively, the dollar is relatively strong.

CORNISH: But let me get into this a little more. I mean, why would the U.S. agree to help Japan when we have so many people out of work here?

DAVIDSON: This is the big challenge for American financial leaders, you know, the Treasury Department and the Fed, et cetera, for the last several years. We're very worried about the U.S. economy. At the same time, we have learned very painfully that when other countries are doing badly, that hurts us too. So yes, we could have a strategy that's America first. We're just going to do everything to help American exports. But doing that would severely hurt key trading partners and that, in turn, would hurt the U.S. too. So we're kind of stuck. We have to help the other folks to avoid longer-term pain.

CORNISH: That's Adam Davidson with NPR's Planet Money team. Adam, thank you.

Thank you. Audie.

[Butifldrm]

Thanks yota for the post.  I know we are all in this for the Dinar, but everyone here in this forum needs to read this.  I know their are many of us not just watching Iraq, but watching the US economy too.  The Dow is at 15,276 Gold is down to 1394, the USD was at .81 last Friday and now it is almost .84, after I might say the G7 meeting.  The economy of the US should hold just as much importance, to we the investor, as the Revaluation of the Dinar itself.  If we choose to cash into the dollar, in which by the way, we may not have a choice,  Theoretically, we could loose a lot of money if the dollar were to be devalued post RV. I would also add, NPR is not a conservative site.  It pretty much exemplifies the Liberal.  Conservative or Liberal.  Liberal or Democrat we all buy and spend the same dollar.