I now hear economists of note saying that the declining dollar will make US exports cheaper and that will lead to correcting our massive trade inbalance. They speak of making cheaper products, not making cheaper services. When will they learn? Anyone in the international trade field has known for some time that the US excels in exporting services, not products. Not hard to understand this, 80% of our work force is in the service sector and less than 15% in manufacturing.

The US shares this export trait with the UK and India. Those two countries also earn more from service exports than from manufactured goods. Best of all you don’t have to compete with China, since it is a poor exporter of services.

Since 1985 I have been telling exporters if the Chinese make your product, get out. In fact, in 1972, when then President Nixon was opening China and I was working on the Chinese economy at the State Department, I constructed a model which predicted Chinese foreign trade as it opened to the world. My model was dismissed out of hand by the “China Experts” for being too “simplistic.” Well, it may have been simple, but it subsequently proved to be right on the money.

Most economists continue to be locked into the tangible item syndrome. If they cannot touch it, smell it and feel it, it is not “real.” Thus the many “economists” who see a lower dollar meaning more exports of US products. Yes, a lower dollar will also make our services cheaper, but we are so far ahead of the crowd in this trade, price competition is of less importance.

To understand what I am saying take a look at the movie business. American movies in general make as much money at home as they do abroad. And this is a service export, since we do not export cans of films, but the rights to reproduce and distribute our films. Ditto for music. Most importantly, they do not compete based on price.

Of course this is a bit more complex when you talk about financial services. But we do export our “securitized debt.”

In sum, I do not share the optimism of those who see a cheaper dollar leading to correcting our trade inbalance. In fact it will just make it more expensive to pay for our imports.