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Chinese currency and U.S. manufacturing
- By Tim Heston
- June 21, 2010
Today the Chinese currency rose against the dollar 0.42 percent in Asia—not much, but that’s the biggest one-day gain in five years. This came after Chinese officials announced on Saturday that they would allow greater flexibility in the value of China’s currency.
On one side of the table is President Obama and Congress; the other, the Chinese government. The issue: currency manipulation. China had pegged its currency to ours. Wherever the value of the U.S. dollar went, so did the renminbi. This gave what many have called an unfair advantage to Chinese exporters. It’s something that’s been painfully obvious to the manufacturing community, but a message that has had to be trumpeted again and again to the folks in Washington.
China has cheap labor, of course, so U.S. manufacturers have minimized the impact of labor costs by integrating automation. But no matter how efficient U.S. manufacturing operations have become, managers haven’t been able to do much about exchange rates, except raise their ire against politicians in Washington. And politicians had to tread carefully. Chess moves happened slowly. After all, China is financing an enormous portion of U.S. government debt.
Some congresspeople have been threatening protectionist actions. But many economists have said that protectionist threats from Congress weren’t the only reason China decided to make a move now. For one thing, a floating currency may help raise the standard of living in China. As The New York Times explained, “Because oil is denominated in dollars on the world market, a rise in the renminbi would make oil cheaper for Chinese purchasers.” Also according to the Times, “Faced with spreading labor unrest, particularly in the auto industry, the government has started to make an energetic effort to improve the standard of living of industrial workers.”
Perhaps most of all, pegging the Chinese currency has put a burden on the Chinese economy. As the Times reported, the country spends a tenth of its economic output buying Treasury notes and bonds as well as other foreign securities, “while printing and selling renminbi, all in an effort to prevent the renminbi from rising against the dollar.”
One big question remains: How will this affect U.S. manufacturing? The brightest spot may be the rising purchasing power of Chinese consumers, who may benefit most from a currency that, we hope, will eventually float. The Great Recession showed that the U.S. can’t play the world’s consumer forever, and perhaps the same holds true on the flip side: Chinese manufacturing can’t be the workshop of the world forever either.
Change won’t happen fast. But after this gradual rebalancing of the world economy takes place (over many, many years), the U.S. may consume less and make more. For U.S. manufacturers, this may be a very good move.
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The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
start your free subscriptionAbout the Author
Tim Heston
2135 Point Blvd
Elgin, IL 60123
815-381-1314
Tim Heston, The Fabricator's senior editor, has covered the metal fabrication industry since 1998, starting his career at the American Welding Society's Welding Journal. Since then he has covered the full range of metal fabrication processes, from stamping, bending, and cutting to grinding and polishing. He joined The Fabricator's staff in October 2007.
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