Gravity causes objects to fall. However, some items will fall faster than other because something called "friction." This would no doubt leave the WSJ hugely confused. It tells readers today that: "Recent academic research has raised questions about just how exchange rates affect trade. Suffice it to say the relationship is complex." Yeah, the rate at which import prices rise and the resulting falloff in demand will vary by country and company. The same applies to exports. But the relationship between the price of the dollar and the trade balance is sort of like the relationship between wealth and consumption, the relationship between investment and productivity growth, the relationship between education and income. It is not always the same everywhere, but serious people don't doubt its existance. Btw, the WSJ's comment that: "But exports grew in the 1990s, even as the dollar strengthened, notes Brown Brothers Harriman currency strategist Marc Chandler" is too silly to appear in a serious newspaper. The trade deficit exploded during this period, as people who understand economics would have expected. The fact that exports also expanded is almost completely irrelevant to anything. One of the big reasons that exports expanded is that when U.S. firms outsource production, this often means exporting intermediate goods to be assembled in other countries. For example, U.S. exports of car parts to Mexico soared following NAFTA. The parts did not go for Mexico's domestic consumption, they were used to assemble cars that were exported back to the United States. The WSJ should understand this relationship.
--Dean Baker
