I love watching TV economic news in Europe. It is the only thing that makes US economic news look good. The European version usually has some airhead reading numbers off the chart being shown on the screen to viewers of the latest prices on the Sri Lanka stock exchange (yes, Sri Lanka has a stock exchange and I know the guy who put it together). But hey, it’s good for laughs.

One item that keeps cropping up on this news is the impact of currency exchange rates on exports and imports. Dusting off their first year reader in international trade the airheads portentously intone that a higher value dollar will make US exports less attractive in Europe while giving more opportunity to European exports to the USA. Well afer having spent a lifetime working in that vineyard, I can say with some authority that the exchange rate is probably the least important component of cross Atlantic trade.

Take my current business, selling Portuguese wine in the USA. An 8% percent decline in the value of the Euro against the dollar should mean an 8% decline in our price to the US customer. But no, our prices are already listed in dollars in the USA so the value change simply means a higher Euro profit at the winery. Moreover, the final sale price at the wine shop is about three times the cost of the wine at the winery. Thus all but one third of the final price came from costs priced in dollar. Needless to say, if someone wants a particular European wine a cheaper priced domestic one will not do.

Fine you say,this may work for one item but currency exchange must have an effect on the overall numbers. Let me start here by saying, no matter how cheap the dollar may have been vis a vis other currencies, we have steadily run trade deficits for over 20 years.

Another factor lies in that familiar rule you learned in your first year international trade book, “trade responds to comparative advantage.” While most don’t really fully understand what this maxim implies, they do know it works to direct trade. Essentially, countries will tend to export goods, not because they are the only source, but because they can produce the goods at a lower price than others, i.e. there are other sources.

Problem, when one considers the share of world trade accounted for by petroleum, various agricultural goods - coffee, bananas, tea - and other minerals, one sees that the bulk of world trade comes from products that have few sources and they do not compete. I do not know of one agricultural product that is not traded through an international agreement that sets limits and sometimes prices on the exporting countries. OPEC does an equally fine job of setting limits on petroleum exports. In a nutshell, the major part of world trade takes place without any regard to currency exchange rates.

Consider the situation for more sophisticated, manufactured products. Here we can see the role of aircraft in world trade as well as major civil works projects. We talk here of exports which are being pushed by the highest levels of officialdom - kings, queens, presidents, prime ministers, despots and dictators. Well you may be interested in knowing that the main inducements for buying here do not include price. These sales rest on financing for the sale and often transfer of technology.

No, a cheaper dollar does not mean that you will not buy a new Mercedes, it simply means that you will pay more in dollars for it. Please understand, a lower value for your currency vis a vis other currencies means that your import bill will go up, with no assurance that your eport sales will do likewise. Nor does a more expensive dollar mean that European buyers will forgo American movies, television programs, financial services, aircraft and other goods and services in which we have little competition. They will just have to pay more in Euros.