Exporting good or bad?

Question

You always hear that exporting is good because it brings money into the economy, but the more money we receive the more our dollar value drops correct?

Answer 1

Mostly No but sort of Yes. A US exporter generally will receive US dollars in the transaction. So a foreign buyer needs dollars to buy the US product. So the foreign buyer exchanges his currency for dollars -- in other words, he buys dollars in order buy the US export. This increases the demand for dollars on the international stage, which would tend to increase the relative value of the dollar versus other currencies. So a lot of exporting and a trade surplus might be expected to strengthen the dollar versus the Pound or Euro etc.

Where you are sort of right is that exporting results in more US dollar cash flowing into the US. if the situation is not handled right, this could quickly increase the money supply and lead to inflation, which is a way of saying the dollar loses value.

So you got a couple of competing vectors there don't you? Does the dollar go up due to international trade or down due to inflation? Economics is a very complex symphony. In this case it is the Federal Reserve's responsibility to soak up the excess liquidity that a trade surplus would cause.

Today, all eyes are on China as they face this very situation. Their trade surplus could ignite serious inflation by flooding their economy with money, if they're not careful. So far their Central bank is doing a good job.

A comment on the above answer by Dowcet -- domestic trade within an economy is FAR more important than exports. Exports are way over-rated. An economy stands or falls on it's internal workings; a healthy economy does not depend on exports for growth; and the vast majority of wealth creation in an economy is due to internal trade.

China is heavily export-dependent because it is a backwards, developing nation. Japan is much too dependent on exports because it is a fundamentally sick economy destined for a demographic implosion -- it truly cannot grow at this point without exports, which is quite a bad thing.


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Answer 2

I would say that on the whole, increasing exports is a very good thing for an economy, in almost all cases. It is true that exports are how you bring money in. Domestic circulation is important, but exports are what really drive growth.

Generally speaking, exports RAISE the value of a country's currency. The more that people in other countries buy our products, the more valuable our currency is. This is a question of supply and demand: people need our currency if they are going to buy our stuff, so the more we export, the more demand there is for our currency.

I think the main reason that exporting can sometimes be problematic, from an economic perspective, is that it shifts capital away from producing goods that are needed domestically. For example, exporting a valuable natural resource can discourage industrial investment, a problem known as "Dutch disease". Illustrating a similar problem, many Latin American countries benefited from exporting coffee when the price of coffee was high, but the price of coffee eventually dropped. This was disastrous for countries that had become dependent on exporting that commodity to buy things they needed--often including food--from other countries.

Answer 3

wrong.

Answer 4

NO!