Even though I’m “kinda on vacation” down in Florida with my family, I’m still keeping up with the daily news. 
All this news about the Chinese government artificially keeping the US dollar low versus their Chinese yuan (rmb) currency –> USD/RMB – or a higher Chinese Yuan (RMB) to a US dollar (RMB/USD). Today I read on the news:
China targeted in bill on currency manipulation
House passes bill targeting China for currency manipulation, Senate prospects uncertain
During the House debate, supporters cited studies that they said show the legislation would boost American exports and create more manufacturing jobs in this country.
“Some credible estimates are that we could return a million American jobs to this country,” said Rep. Xavier Becerra, D-Calif., in urging support for the legislation. “We can either take bold steps or we can take baby steps.”
Opponents said the legislation would boost the cost of clothing, toys and other goods that American consumers buy and also ran the risk of sparking retaliation by China against American exports.
“The available evidence is that the price of many of these Chinese goods will go up 10 percent, a pair of shoes that a mother needs for her child to go to school … toys at Christmas, all become more expensive,” said Rep. Jeb Hensarling, R-Texas.
Supporters rejected that argument, saying it is critical in hard economic times to protect U.S. jobs.
“Without a job, you can’t buy goods at any price. This bill is about jobs,” said Ways and Means Committee Chairman Sander Levin, D-Mich.
Passage of the proposal was cleared when Levin led an effort to craft a compromise proposal that supporters believe will be better able to withstand a challenge before the World Trade Organization, the Geneva-based group that oversees the rules of world trade.
Ok, so lets say that it may be devalued – and it appreciates against the US dollar. Is that gonna solve all the problems in the American economy? US distributors and importers are already looking at India, Vietnam, Thailand, and other Southeast Asian companies for new sources of factories and products. You really think that America is gonna start doing injection mould plastic again? That is a huge investment, those are gone now. And prices in Wal-mart WILL GO UP. So that means America will have to pay more for its good, while still having huge unemployment – while the US distributors shift their purchasing to other Southeast Asian manufacturers and suppliers.
There will be answers and solutions – but picking on the Chinese government is only gonna piss them off! Maybe not some kind of world war, but at least some extra tension. Maybe the US government wants that….challenging the pressure of the Chinese on the amount of debt it holds of US treasuries.
If you are interested in foreign exchange, let me know what your RMB/USD requirements are, I work with my friend Huck Leung at Fob LC in China! Many Chinese suppliers aren’t even quoting in US Dollars anymore, they quote in Chinese Yuan! So you can let me know – sorry for the “advertisement plug here” it just compliments the current story today!
Comments
The whole concept of exchange rates is crazy. Minor disruptions or changes in rates have massive effects on capital movement. There is no “real” reason why X currency is worth Y of another currency, especially since all the currencies are fiat anyways.
hey Marshall, well I guess currencies represent current state of a government’s POWER and INFLUENCE in the global market…
it jsut amazes me the US government’s answer is to make its people poorer by making their currency devalued……
guess thats why GOLD is skyhigh at record highs
I think its a good bill. China controls its currency for its benefit. It undervalues its currency against the US dollar. should the US sit there, not do anything and just wait for China? The US is protecting US businesses against all undervalued currencies from any country, not just China. Even the playing field. There are US Citizens working in factories, including my parents. Those jobs are important.
Piotr,
I appreciate the other perspective…I wonder though, sure this will SCREW China’s export market, making it more expensive for foreigners to buy and do business there. OK, there, USA hit em.
But, I have been to factories in Thailand – there are factories in Vietnam, Bangladesh, India —-> what about them? I guess maybe we can say their currency moves more freely and will increase as the USD depreciates in those countries…..
I just don’t know if I can ever imagine manufacturing to flourish in America again??????? I mean….I can’t see that happening. Maybe Mexico or Canada then?
As long as Thailand, Vietnam, Bangladesh, India etc don’t undervalue their currency and allow the market to run its course, those will be fine. I guess the US made that general law so that as soon as Chinese currency becomes valued where it should be, there will be no additional tariffs and export taxes right.
I’m not saying manufacturing will flourish in the US. I think that there are factories in the US making products with US employees. They are constantly being pressured to move overseas, or buy from overseas, especially if an undervalued currency gives a foreign competitor an advantage. This sort of evens the playing field so that US companies can compete with Companies that are in countries with undervalued currencies.
Well…..lets see…again I do believe the world is flat…..maybe then america dollar will be so low europeans will outsource to america and more chinese will go to usa universities….wouldnt be that crazy
My thought though is the us government also needs to support businesses here and not tax the hell out of them….most factories are gone. And they dont trust the us government enough to make LONG term business investments in america for fear of tax and polixy changes in washington
Funny – rewind to when the USA was a “developing nation” the Europeans were complaining that we were killing their market for cotton by using out “slave labor (literally!).
true…..whats next? Chinese complaining about low martian tax rates importing into Hong KOng?
the world is flat….guess its gonna have to go to outter space next right
hey ,michael,recently i traveled a lot. from shenzhen – beijing-dalian-shenzhen-Hongkong,,
I haven’t checked your blog till today we finish our national holiday and back to work.^^
I know nothing about finance,but the currency rate just make me lose money. It influences many chinese people who do international business. My ex-boss is shouting on QQ: why RMB rise? I want to cry..
I guess he has lots of USD in his account,hahaha:-)
Have a graet time always! I am enjoying reading your new articles,,hahaah
thanks Jane! enjoy your National holiday, another LONG chinese holiday, jeez, haah. Lucky Chinese can enjoy such long holidays.
Yes, high RMB will destroy the Chinese export business……
thanks for reading my blog, and appreciate your comments. I think I am blogging too much