As most of us have realized, the US dollar frankly sucks. Less than a year ago, the dollar equaled 125 yens. Today, it's value is under 100 (98 exactly). What does this mean about trade with Japan? Would this mean increased prices for Japanese goods as Hondas and Mazdas and Manga?
On the other hand, the Chinese Yuan is not allowed to fluctuate too much and is pegged closely to the dollar. Although many economists believe the Yuan is undervalued as much as 40% what affect would this mean to our relations if this were to change? We import so much from China. I'm not an economist. Just wondering what other people's thoughts are on this.
You are here
Falling US dollar v. Yen and Chinese Yuan
03/16/2008 10:17 AM
#1
Falling US dollar v. Yen and Chinese Yuan
I know with the trade deficit ever increasing with China this issue has many of the Feds ticked off. They believe China is purposely keeping their currency deflated so that Americans can keep buying Chinese goods on the cheap thus keeping our trade deficit high and American made goods low. American companies in order to turn a profit must have their products made in China because labor costs are so low. As a result, we get pet food and toys that have lead contamination because production standards are not like they are here. Another reason why the Feds are upset about the Yuan's value being kept artificially low is that it increases China's wealth to invest in modern weaponry which in today's world could lead to another Cold War. Just my thoughts!
I also think that the Yuan are artificially kept low v. the dollar but wild fluctuations would disrupt the market even more. I dont know what the best reponse should be. Although, I would like to see our deficit with China decrease by changing the value of the Yuan, I also think it could hurt the US economy by causing inflation here.
The US dollar is really getting a beating against top world currencies. And whether the Chinese Yuan is kept artificially low or not doesn't make the future brighter for the US dollar unless it bounces back to what it's worth, say two or three years ago. In fact, in my homeland Philippines, overseas Filipino contract workers want to get paid in Philippine currency (Peso) instead of US dollars to at least maintain a higher salary rate. Less than three years ago, the exchange rate between Philippine peso and US dollar almost hit P52:US$1. Now the exchange rate is P41:US$1. With the increasing prices of basic commodities and transportation in my homeland, overseas Filipino workers want to be paid in pesos to avoid getting hit by the continuing slide of the US dollar. I don't really know the situation in China with respect to the Chinese Yuan against the US dollar. All I know is that the balance of trade between US and China is quite lopsided in favor of the latter.
If the exchange rate is favoring against the dollar, there isn't actually a need to ask for pay in another currency - just more pay. If you get paid less in your current currency, then ask for more. Whether you'd get it, I dont know
Chinese furniture manufacturing is starting to move away from cheap and into the mid-price range. This has driven the low-cost manufacturing into Vietnam where wages are still low.
I just read an article (can't remember where) about Vietnam overtaking China in manufacturing. It seems the Chinese are expecting a little more wage for their work and now manufacturers are looking to Vietnam.
I read the same thing about Vietnam. It's true but there are other issues that would keep manufacturing in China despite the relative increase in costs. The main thing is transportation to where they want to ship these products. The chinese have developed massive plans for the exportation of materials out of China from ports to containers. Although Vietnam is building these now and has a lot already, the Chinese are still ahead the the quick, efficient, and cheap transportation of materials for shipment.
My concern would be the power China has over the dollar because of the amount of mix bonds they hold in U.S. currency. It is estimated that China has about 900 Billion dollars in U.S. bonds and if they wanted they could use that as a weapon to flood the market and cause the U.S. dollar to crash even more...especially in its weakened state. The question of how to handle this needs to become a poltical campaign question that should be asked of our Presidential hopefuls.
It's true the Chinese has the power to seriously weaken the dollar but it is their best interest not to do such. It would devalue their own surplus which are held in US dollars and lose it's main trading partner.
In reference to the 900 billion in U.S. bonds that China controls.
I agree that it is in the best interest of China to keep the dollar strong and that they do rely on America as a critical trading partner. In times of peace it works very good for both. However, if the two became entangled in a conflict the U.S. would use its Nuclear power as a deterrent and China would leverage this Economic "Nuclear" weapon as a deterrent. These threats could maintain peace or propel a conflict reminiscent of the Cold War.
If we were in a world where we're considering nuclear weapons, I would care less about the falling dollar at that point.
Undervaluing the yuan keeps investments coming into China. And with the inability to take money out of China, there really is no economic harm done to the government. The workers will pay the price with their sub-standard living conditions.