Upside: Weak dollar boosts U.S. exports

World leaders gripe - Remedy isn't U.S. priority

WASHINGTON -- When the finance ministers of six leading developed nations come to Washington this week, they will bend Treasury Secretary Henry Paulson's ear about the weak dollar and gripe that it's hurting their exports.

They won't get much sympathy.

Paulson will be in no mood to talk up the dollar -- which has nose-dived against many leading currencies -- because the weak greenback has sent U.S. exports soaring by almost 13 percent year-over-year through August.

"I think Paulson may have to talk nice, but he won't be forced to do anything more than that," said Adam Posen, the deputy director of the Petersen Institute for International Economics, a think tank in Washington.

The dollar's slide also has offset the economic pain from the crumbling housing sector.

What's been good for U.S. exporters of airplanes, car parts and farm products hasn't been so hot for rivals in Canada, Europe and parts of Asia, whose goods are now more expensive on the global market than U.S-made and U.S.-grown goods.

Group of Seven ministers from Germany, France, Italy, Great Britain, Canada and Japan are expected Friday to press Paulson to talk up the dollar, in hopes that it will slow the dollar's slide. The dollar has lost 8.1 percent of its value this year against the euro, the currency of 12 European Union nations; last year it lost 8.2 percent.

For the first time in three decades, the U.S. and Canadian dollars are virtually on par.

Canadian energy companies and mining giants' commodities are priced globally in U.S. dollars. The near-parity of the U.S. dollar and Canadian dollar means Canadian energy and mining companies get less for their products when measured by their currency.

Though Canada's online pharmacies still offer bargains to U.S. prescription-drug buyers because of differing industry cost structures, dollar parity has hurt them, too.

"It has affected business negatively. ... The perception has decreased sales, for sure," said Alan Flowers of Candrugstore.com in Vancouver, British Columbia.

Paulson has repeatedly said that a strong dollar is in the best interest of the U.S., but financial markets determine the value of freely traded currencies. The U.S. dollar's value has eroded relative to other currencies' because of the U.S. economic slowdown, the Federal Reserve's recent half-point cut in lending rates and strong economic growth in Europe.

Behind the scenes, Paulson is likely to tell the Europeans to look east, not west, to resolve their trade problems. European powers did little to help Washington make its case that China's fixed exchange rate makes its products artificially cheap. Now Europeans are shouldering the brunt of the dollar-euro realignment. China's exchange rate remains pegged to the dollar, so China doesn't suffer.

"I think, if anything, he's going to be sort of smirking and saying, 'You guys could have gotten on board and helped us pressure the Chinese,' " Posen said. "I think the game is not going to be about coordinating or making any promises, but getting together to confront the Chinese."

The meeting this year of the Group of Seven -- known as the G-7 -- in Washington stands out from past gatherings because finance ministers won't likely be focused much on the outside world.

"For the first time, much of the agenda and problems come from inside the G-7, rather than outside," said lecturer John Kirton of the University of Toronto, who leads the G8 Research Center.

He said finance ministers will focus on problems in the U.S. credit and mortgage markets that have spilled across the Atlantic to banks in France and Germany and north to Canada, leading central bankers to intervene with cash to keep markets functioning properly.

"It may have started in the U.S., but it's a collective G-7 problem," Kirton said.