What a stronger Chinese yuan means for the U.S. | Hacker News Reader

What a stronger Chinese yuan means for the U.S.

reuters.com

34 pointsllambda10 comments

There is always somewhere else to move to, unless US labour becomes cheap compared to ALL other countries. The solution is not to make all other countries expensive, or make US labour cheap (through currency depreciation or what not).

I believe the best way out is through technological innovation, increase export in high-end products to reduce trade deficit. Although that would require patience and long-term thinking, which is going to be very difficult in current political climate.

I agree that forcing Beijing to raise the value of the Yuan is not going to end all our financial woes (as suggested by some politicians) and turn America back into a manufacturing powerhouse. Many companies (recently Nokia) have been moving their factories to Vietnam as wages there are lower than even China.

In a recent interview between Marc Benioff (salesforce.com's CEO) and Eric Schmidt (former CEO of Google), Eric said that oftentimes outsourcing is not just because of cheap labor, but rather because America doesn't have the infrastructure or skills necessary to perform the kind of manufacturing necessary in high tech industries (think printed circuit boards, which are done exclusively in Asia nowadays).

Given America's emphasis on education (or lack thereof), I don't see this changing anytime in the near future. Troubling news indeed.

That does depend on other countries buying those high-end products, instead of simply reverse-engineering them or stealing the designs and manufacturing them at lower cost within protected domestic industries. China's highly protectionist industrial policy only allows foreign products into the country so that they can coerce their producers into transferring the technology to Chinese competitors.

U.S just love meddeling don't they?

If China raise the value of their currency too quickly they plunge hundreds of millions of people into dire poverty. (We are talking more people than in the entire US). Just so the U.S can reduce its deficit, and generate local jobs growth...

"I want globalism... but only as long as it benefits me, and you play by my rules"

inflation?

My understanding is that the relative value of different currencies (what we're talking about here) is a different (but somewhat related) thing to inflation within a currency. But yeah, in this case, a stronger yuan would cause prices of Chinese manufactured goods sold in the US to rise. So yeah, that'd contribute to inflation, but my understanding is that significant long-term inflation is... difficult without wage inflation, so it'd probably be more like the commodity inflation we've experienced, where prices went way up then stayed flat or came back down; they didn't keep going up.

Of course, /if/ policymakers get their way and more manufacturing jobs are moved back to the US, in the best case that could cause demand for unskilled workers to rise, and maybe we'd see some wage inflation; but that sounds ridiculously over optimistic to me. We have a lot of 'discouraged workers' on the sidelines who will come back if they think they have a chance at a job.

I think you nailed the effect, just have to combine the two: both forms of inflation could occur. First through prices as consumer goods become more expensive, then later through increased wages to compensate as well as capture some of the excess returns capital earns. In the textbook version, we'd end up in the same spot.

First of all, isn't pinning the Chinese currency to the US dollar against WTO rules?

It is important to note that in order to pin the Chinese currency to the US dollar, China must regularly print more and more money, and then they buy US debt with it.

Considering that 10-year US bonds are at staggeringly low interest rates (1.91% as I write this), they're basically giving us free money every time they do this. Why aren't we spending more federally on job programs to get people employed (and/or trained for employment)? Oh yeah, because >socialism<.

China doesn't have to print money to buy US debt; it has massive amounts of foreign currency reserves from the trade imbalance between the countries with which it purchases treasuries. Something to the tune of $1 trillion USD.

So, in essence, the US is printing money to provide China with treasury assets.

EDIT:

Also, I guess you could qualify it as getting free money, but in fact it's money that has already been spent, which is the federal deficit. So what happens when China decides to stop buying that debt? Then we no longer have the money to cover our over-spending. That's the issue. The economic argument lies on whether China will ever consider the US a "bad bet" and stop buying debt (it has, in fact, slowed) or if the two countries are so intertwined as creditor-debtor that both have to continue playing the game in perpetuity.

>they're basically giving us free money every time they do this.

No exactly. China provides US with goods produced in China in exchange for treasuries printed in the US (goods -> dollars, dollars -> treasuries).

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