Emerging economies that export to the United States are seen to benefit greatly from the rising U.S. dollar, says Drewry Maritime Research in a new analysis.
Drewry said a strong U.S. dollar, now appreciating at its fastest clip in decades, is giving some of America’s trading partners a competitive boost. The U.S. Federal Reserve’s trade-weighted average of the foreign exchange values of the U.S. dollar against a basket of major currencies shows that the greenback has jumped 9% since the end of 2014 and by 20% since March 2015.
Noting that a rising currency is “good news for local importers and bad news for exporters,” the maritime consultancy said this is true in America’s case, whose total container imports outpaced exports last year, growing by 7.8% versus 4.4%.
Based on statistics, weaker currencies benefited some countries in the container trade with the U.S. The biggest winners last year were Brazilian exporters. Brazil’s container exports to the U.S. jumped by 25% in 2014, leaping three places to become the second single largest exporter to America in tonnage terms. The real’s depreciation against the dollar was larger than other major currencies due to falling commodity prices and the recessionary state of the Brazilian economy.
Indian container exports also received a significant leg-up with tonnage to the U.S. rising by 23% in 2014.
Unexpectedly, said Drewry, U.S. exports to these two countries still posted growth. U.S. to Brazil container tonnage increased by a healthy 14%, while Indian imports of U.S. containerized goods rose by 8%.
U.S. exporters, however, may encounter bigger hurdles this year if the dollar continues its trajectory.
Other nations with lower exchange rate movements against the dollar also did well. South Korea’s box exports in tonnes increased by 12% last year even though the won appreciated mildly against the dollar. China, with its loose peg of the yuan to the dollar, increased its tonnage to the U.S. by a smidgen under the average at 7.5%. This kept China’s market share at around 36% with nine times the size of Brazil’s tonnage. As for the Euro area trading bloc, the euro’s depreciation since the start of this year should encourage more westbound trans-Atlantic container traffic.
Japan stands out as the exception. Despite the yen losing about 15% of its value against the dollar through 2014, its exports to the U.S. fell by 7% in tonnage terms.
Said Drewry: “It’s difficult to pin down the precise reason why the currency depreciation/higher exports equation has broken in Japan but some explanations range from its goods being too pricey as firms look to hold on to profits, acceleration in outsourcing—soon more cars will be built by Japanese car makers outside Japan than inside—and its hi-tech products losing their appeal against foreign competitors. Ultimately, consumers must want to buy your products even if they are cheaper than before.”
For 2015, the dollar is widely expected to strengthen further. This will undoubtedly be welcome news for emerging economies and the Eurozone, continued Drewry.
But there is also a potential downside. Companies that borrowed heavily in dollars are now seeing those loans become much more expensive to pay off. Numerous sugar producers in Brazil have already succumbed (also due to low commodity prices), and high profile firms in India and China are also struggling with inflated dollar debts.
The specter of bankruptcies and job losses, said Drewry, could prompt policymakers in these countries to implement measures that would work against exporters.
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