Falling Dollar Pushes Manufacturing Out of Europe

With the secular decline in the US dollar, some manufacturers like Mercedes-Benz that face rising costs and lower competitiveness are moving some production from Germany to the US. Normally, such companies hedge their exchange rate exposure through derivative contracts to protect them against rapid depreciation of foreign currencies. But such contracts become more expensive amid a sustained decline as seen by the dollar. Moreover, the Europeans are in a bind – if they raise product prices, fewer people will buy their goods, but if they keep them steady, they’ll lose money. While the weak dollar hurts exporting countries like Germany, it turns out to have many benefits for the US: improving trade balances and lowering interest costs on a relative basis. With manufacturing leaving Europe, some workers are less than thrilled about this trend and in Mercedes-Benz’s case have called for the ouster of the CEO. In an interconnected world, even currency fluctuations can affect job security. – YaleGlobal