Dollars and Sense. John Nolan Vice President Steel Dynamics, Inc. Fort Wayne, IN USA

Transcription

1 Dollars and Sense John Nolan Vice President Steel Dynamics, Inc. Fort Wayne, IN USA

2 Federal Reserve Coalition for a Sound Dollar American Iron and Steel Institute Steel Manufacturers Association Salomon Smith Barney National Association of Manufacturers Dr. Robert Blecker

3 The Dollar Crisis Common Ground History Direct Investment Solutions Risks Your Role

4 The Dollar Goes Up Manufacturing Profits Go Down Broad Real Dollar Index (right scale) Profit Share of National Income in Domestic Manufacturing (left scale) Sources: Federal Reserve Statistical Release H.10; U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts

5 Overvalued Dollar Devastates U.S. Manufacturing Change in: Stable Dollar ( 91( 91-96) 96) Strong Dollar ( 97( 97-02) Trade Deficit - $176 billion - $468 billion Imports Exports $800 billion + $204 billion One Trillion Dollars! - $80 billion Six Years After Coalition for a Sound Dollar August 2003

6 Overvalued Dollar Devastates U.S. Manufacturing Change in: Stable Dollar ( 91( 91-96) 96) Strong Dollar ('97-03) Employment 18.5 million ( 01)( Manufacturing is 14% of USA workforce 501,000 jobs added 3.2 million jobs lost since June 98 Manufacturing is 90% of all USA job losses Six Years After Coalition for a Sound Dollar August 2003

7 Declining U.S. Industry Machinery Autos Textiles Lumber Chemicals Aerospace

8 High Tech High Skill Hi Ho! Dollars & Sense

9 Overvalued Dollar Hits U.S. High Tech Change in: Stable Dollar ( 92-96) 96) Overvalued Dollar ( 97-02) Exports + $25 billion - $31 billion* Imports + $17 billion + $50 billion Trade Deficit + $35 billion ( 96)( -$17 billion ( 02)( Projection for 2002 based on YTD 9/02 figures. *Since 2000 peak. Six Years After Coalition for a Sound Dollar March 2003

10 Investments Are Down $37 Billion

11 150 When the Dollar goes up so do US Steel Imports Steel Import Share (right scale) Fed s Broad Real Dollar (left scale) Sources: Federal Reserve Statistical Release H.10; U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts

12 Steel Prices Devastated by Overvalued Dollar Hot-Rolled Cold-Rolled Historic Low Source: Purchasing Magazine

13 Overvalued Dollar Hits U.S. Agriculture Change in: Exports: Stable Dollar ( 92-96) 96) Up $20.9 billion Strong Dollar ( 97-02) Down $2.6 billion Imports: Up $9.2 billion Up another $7 billion Trade Surplus: Rose to $27 billion Fell to $11 billion

14 Right-Sizing the Dollar

15 The 1980 s Trade Deficit James Baker Secretary of Treasury

16 The 1990 s Asian Crisis Weak

17 2002 Dollar Peaks 30% above norm (17-year high)

18 Overvalued Dollar: Low Inflation Low Import Prices Consumers Benefit Low Interest Rates Inflated Purchasing Power in Foreign Markets

19 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

20 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

21 10,000 Baht Equals 1 ton of finished steel 30% Subject to FX 70% Constant 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

22 10,000 Baht or US$400 for 1 ton of finished steel 1 Baht = 4 and 7,000 Baht are Constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

23 1 Baht = 2 13,000 Baht 1 Baht = 4 for 1 ton of finished steel and 7,000 Baht are Constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

24 1 Baht = 2 $140 / ton Steel costs up 30% to 13,000 Baht or US$260 1 Baht = 4 $280 / ton from 10,000 Baht or US$400 7,000 Baht remain constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

25 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

26 Japan, Korea and Taiwan routinely intervene or manipulate currency markets to drive their currencies lower and thus gain competitive advantage against U.S. manufacturers. Six Years After Coalition for the Sound Dollar, March 2003.

27 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

28 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

29 Pic of China 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.

30 The Pegged Yuan: 1. Subsidizes Chinese exports to the US 2. Taxes US imports to China 3. Displaces US exports in third country markets 4. Threatens all of US Manufacturing

31 Go West Strategy 10 New Cities!

32 Overvalued Dollar Depressing Capital Spending $37 Billion 58,000 more manufacturing jobs lost in May $100 Billion reduction in profits Reduced ability to compete Loss of Pricing Power

33 Solution?

34 Plaza Accord September 22, 1985

35 COORDINATION Think Plaza

36 LEADERSHIP Allan Greenspan Chairman Federal Reserve John Snow Secretary of the Treasury

37 MONETARY POLICY

38 WIN-WIN

39 BACKBONE

40 DO IT NOW!

41 RISKS

42 REWARD 10% decline in $ = 6% increase in profits

43 What Can You Do? Try

44 SOURCE ACKNOWLEDGEMENTS: Let It Fall: The Effects of the Overvalued Dollar on U.S. Manufacturing and the Steel Industry Robert A. Blecker, Ph.D., Professor of Economics, American University Six Years After Coalition for the Sound Dollar, March Metals & Mining: China s Impact on the Metals and Mining Industry Salomon Smith Barney January 23, 2003 China Opportunity or Threat? January 13, Salomon Smith Barney Nihon Keizai Shimbun newspaper February 1, 2003

45 Questions?

46 Dollars and Sense John Nolan Vice President Steel Dynamics, Inc. Fort Wayne, IN USA Once again, thank you very much!!