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Much more serious, devaluation may speed the rise in U.S. food prices by shifting more of the output of American farms into export markets, leaving an inadequate supply to satisfy growing domestic demand. Says David W. Brooks, chairman of Gold Kist, a farm cooperative in Atlanta: "American farmers exported nearly $10 billion in 1972, and the total may go to $11 billion or $ 12 billion this year."
Some American manufacturers who have been holding down prices to avoid being undersold by imports may be tempted to mark up their goods if the prices of competing imports rise. Under Phase III guidelines, such increases are not permitted, but they are difficult to spot because U.S. manufacturers no longer have to get advance approval for price hikes.
The brighter side of devaluation is that it is likely to lead to more American jobs. Detroit analysts figure that higher prices should hold sales of foreign cars in the U.S. to 1.6 million this year; had there been no devaluation, the figure would have been 1.7 million. Price increases will also accelerate a decline already under way in steel imports; Derrick L. Brewster, vice president of Chicago's Inland Steel, forecasts that steel imports will fall 20% this year, to about 14 million tons. Result: about 100,000 cars bought by Americans this year will be assembled by workers in Los Angeles or Flint, Mich., rather than in Wolfsburg or Yokohama, and the steel going into those cars will be rolled at mills in Gary, Ind., or Braddock, Pa., instead of Aachen or Kitakyushu.
In classic theory, devaluations should ultimately bring American payments back into balance. But does classic theory really hold any more? All the optimistic predictions being made now, and more, were made for the 1971 devaluation, and they proved to be false.
A major reason is that both U.S. imports and U.S. exports are largely "price-inelastic," meaning that prices have little to do with whether or not they are bought. Among imports, oil is the standout case. The energy shortage is forcing the U.S. to buy more foreign fuel, whatever the cost. Under an agreement between 16 Western oil companies and six Persian Gulf nations, prices are automatically raised to compensate for any significant changes in dollar values. Because of devaluation, the companies, beginning April 1, will pay $730 million more a year in taxes and royalties for Middle Eastern crude. The increase will force price boosts on both heating oil and gasoline for American consumers. Because oil supplies are tight worldwide, the companies' alternative is not to turn to other sources, but to let some households shiver.
Discrimination. Many U.S. exports—jet planes, computers, machine tools—are hightechnology, high-priced items. A foreign manufacturer who needs five computers will buy that many, but he will not increase his order to six no matter how low the price drops. Beyond that, big U.S. manufacturers decided long ago to serve foreign markets by building plants overseas rather than by exporting. The multinational corporations will profit from devaluation. Their foreign earnings will be worth many more dollars than they would have been in 1972. But only the money sent back to the U.S. in dividends will help the balance of payments.