In the pursuit of the mighty dollar, the dollar itself is proving to be a formidable obstacle.
Corporate economists and planners say the high value of the dollar relative to foreign currencies has become a major factor in charting the course of business for the coming year, forcing companies to take many measures to cope with the effect of the overvalued dollar on industries and markets.
Among the concerns of business, the dollar seems to have replaced inflation as the chief bogeyman -- although the strength of the dollar is also given credit for easing inflationary pressures. But two related problems, the foreign trade deficit and the federal budget deficit, are causing adjustments in business planning.
"If there is any one thing in 1985 that is an area of concern, it's the strength of the dollar," said Alan Lacy, vice president and treasurer of Dart & Kraft Inc., the large food and consumer products conglomerate.
"It's a problem that's not going away," added Charles Reeder, chief economist at E. I. du Pont de Nemours & Co. Inc.
The high dollar has brought a flood of imports into the United States, putting heavy competitive pressures on American industry as it emerged from the recession and tilting the U.S.-Japanese trade balance sharply to the East. And at a time when American corporations are becoming more international, the strong dollar has made it more difficult to do business abroad, raising prices of American-made goods and diluting the profits of foreign operations of American companies.
To keep up, companies have had to cut prices, increase manufacturing efficiency and productivity, and pray for some relief. So far, their prayers have gone unanswered. Even the recent easing of interest rates, which should have made a difference, didn't help: The dollar continued to strengthen.
"I really feel that it is extremely difficult to foresee a continuation of the current dollar," said General Electric Co.'s chief economist, Walter Joelson, echoing a common attitude among business executives. "The unfortunate thing is that we said this a year ago, and maybe three years ago."
Still, the corporate economists are convinced that the dollar's value has to decline sometime, and believe 1985 will be the year it finally does. That said, they're not asking for much -- what most see in their crystal ball is that the dollar will give up the increase in value it posted in 1984.
"The standard hope is that the dollar will depreciate somewhat in 1985. We've got lower interest rates, and some of the things that you'd hope would bring the dollar down," Reeder said. "On the other hand, if the dollar comes down 10 percent, which is what it went up in 1984, you're right back where you were in '83. . . . And it was overvalued then."
The experts fear that a continuation of the dollar's strength will lead to permanent changes in the make-up of the United States' industrial base, establishing foreign manufacturers as major suppliers in many markets. "I think there are more negatives than there are positives, particularly from a longer-range point of view, in the inroads that the foreign manufacturers are making here," Reeder said. "Even when the overvalued dollar disappears, they're not going to go away."
Corporations have adopted various strategies to cope with the inflated dollar. Many are putting premiums on increased productivity and efficiency, investing millions of dollars in new plant and equipment to enable them to make products that will be price-competitive with imports. Overseas, they are urging managers to squeeze ever more profit out of their operations, to counter the deleterious effect of foreign exchange translation, which can turn a good year in a foreign currency into a bad year when expressed in dollars.
In addition, some, like Dart & Kraft, are attempting to use the overvalued dollar to their advantage by borrowing in foreign currencies rather than dollars -- a strategy that allows them in some cases to offset the effects of currency exchange rates on overseas profits. But not all companies favor such speculation: Theodore Eck, chief economist at Standard Oil Co. of Indiana, said that the currency situation has become too volatile even to bet that the dollar will remain strong. "I think corporations, including us, have gotten out of the business of exposing ourselves to the vagaries of foreign exchange," he said.
Making investments to increase productivity, stoking profits of foreign operations -- companies are taking these tacks because they believe that they have to supply their own relief to the dollar dilemma rather than wait for any kind of government intervention. Corporate leaders say they are frustrated by the inability of the Reagan administration to get the dollar to back off its high level of value.
Business leaders also are pessimistic over chances of any reduction in the huge U.S. trade deficit, particularly with Japan, which seems to be the biggest beneficiary of the overvalued dollar.
"Even if you had the dollar where you thought it should be, you'd still have the problem with a huge trade deficit with Japan," Reeder said. "We don't want to sit still for a $40 billion trade deficit with another country when they're not playing by the same rules we are."
Most businessmen want the Reagan administration to take firm steps to get the Japanese to at least ease their own import restrictions so that American companies can sell to the Japanese market as easily as the Japanese sell here.
The overvalued dollar has not been all bad. Among other things, it has solidified the moderation in inflation by forcing prices of American goods to stay low to compete with lower-priced foreign competitors. The low inflation rate is also seen as being caused by the softness in oil prices, which are falling for the first time in years.
"Inflation is not a problem," Reeder said. "That's a new perception, but it's real, it's correct."
Another benefit of the overvalued dollar has been an improvement in U.S. competitiveness that economists hope will be lasting. That is, the advances in productivity and efficiency made necessary by the high dollar should prove a real boon once the dollar's value falls and the imports recede. "When the dollar comes down, we will have benefited because we'll have learned how to run a tight ship in a much tougher environment," Reeder said.
While business' concern has shifted from inflation to the dollar, interest rates remain an area of great worry. The economists say an easing of interest rates might take some upward pressure off the dollar, by discouraging investments in the United States by foreigners trying to take advantage of the high rates. But at the same time, many experts fear that foreign interest rates will fall in tandem with those in the United States, thus not changing the relative attractiveness of American investments.
When the corporate economists and planners put the dollar, interest rates, inflation and other factors into their economic models for 1985, they come up with a variety of scenarios. Most forecast average growth in the gross national product this year of about 4 percent, but they vary on whether the growth will be tempered by a new recession -- and when it might hit. Some believe the slowdown is already underway and will be over soon into the new year; others project it for the second half of the year; still others say 1985 will be consistently strong, while 1986 will see a recession.
They say that, to a large extent, the pattern of the 1985 economy will be dependent on a number of policy decisions in Washington on such large questions as the dollar, interest rates, the budget deficit, the balance of trade and tax policy. As a result, they fear that many of their predictions about the performance of such factors as the dollar and interest rates may be just shots in the dark.