The U.S. dollar’s weak status compared with many global currencies has helped Wisconsin manufacturers boost their exporting businesses in recent years.
Sectors such as agricultural, mining and energy equipment have experienced significant increases in America due to global demand for their equipment.
“There’s no denying that during the last three to four years, the sector that has benefited from the weak dollar has been the manufacturing and export market for the U.S.,” said Mike Klonsinski executive director with the Wisconsin Manufacturing Extension Partnership. “And Wisconsin has been a big beneficiary of that. The machinery that we export has done very well. It’s been a double whammy of big global demand for these industries, which were industries that were still dominated by the Midwest and Wisconsin and a dollar that has improved by 30 percent (by falling). We’re now 30 percent more price competitive than we were years ago.”
While some analysts predict a resurgent dollar during the second half of 2008, that would not erase or damage the gains that Wisconsin manufacturers have made in recent years.
“I can’t see that there would be a dramatic shift even if the dollar were to strengthen in the second half of 2008,” said Christian Bartley, chief executive officer of World Trade Center Wisconsin. “If the dollar were to go up, I don’t see that it would rise so dramatically where we would be in a situation where we were two to three years ago, where we were trading against the Euro in the high 120s.”
World Trade Center is a member of World Trade Centers Association, a New York based nonprofit aimed at fostering international trade relations.
Peter Beitzel, vice president of the Milwaukee Metropolitan Association of Commerce and executive director of the Milwaukee World Trade Association, the global arm of the MMAC, agreed.
“I don’t think that (the dollar) will be in play unless there is some serious depression in the world,” Beitzel said. “I think our companies here are resilient and more have started looking internationally (for new opportunities). I think there is still some ground to be made. Not as many have been focused internationally (as the Europeans) have been. There’s a long way to still go.”
Even if the dollar were to rise dramatically, Wisconsin’s manufacturers would have time to adjust, potentially shifting production to other areas or adjusting their manufacturing techniques, Bartley said.
“It always takes time to shift production (elsewhere),” he said. “And people have contracts.”
The weak dollar, combined with rising Indian and Chinese currencies, has made outsourcing to China and India less affordable. Some manufacturers have brought production back to the U.S., while others are looking for more affordable markets, Bartley said.
“They’re looking at other sources like domestic (sourcing) and other places of the globe like Thailand, Vietnam and Brazil,” he said.
To prepare for less advantageous exporting conditions, manufacturers need to think about diversifying their operations, Bartley said.
“If you are manufacturing parts or components and if you have diversified locations you are mitigating your risk and maximizing your ability to move production to the area that is most financially advantageous so that you can remain competitive,” Bartley said. “It’s sound management practice, but it’s never easy. Those companies who have properly planned, laid out and executed a sound strategy have the advantage and should be able to weather the storm.”
To further protect themselves against the eventual rise of the dollar, manufacturers and exporters should closely examine where they are currently exporting to, and which markets they should work to establish relations with, Bartley said.
“The basket of currency isn’t the same – like the Japanese Yen versus the Euro,” he said. “It’s a balancing and planning process. You’ve got to be looking at the long term.”
Even if the dollar rises, global demand will remain strong for many of the products manufactured in Wisconsin, Klonsinski said.
“The demand looks good for the next few years for mining, oil and gas (equipment),” he said. “There’s a need for more equipment – that’s still there.”
While high shipping costs can make exporting more expensive, they have also given rise to increased domestic demand, Klonsinski said. In fact, the high price of fuel has helped strengthen demand for Wisconsin-made products. Because of current market conditions, many of those conditions will not change much if the dollar rises, he said.
“Even if the dollar trends in the other direction, it will be offset by the shipping nightmare and energy costs,” Klonsinski said. “Almost all of the labor cost price advantages are starting to get overwhelmed by extra shipping costs. And inflation is going faster in some other countries than in the United States.”