Stronger Yuan Will NOT Bring Jobs Back to the U.S.
Nancy Pelosi claims that "One million U.S. jobs could be created if the Chinese government took its thumb off the scale and allowed its currency to respond to market forces."
In the NPR "Planet Money" report, Adam Davidson is pretty skeptical about Pelosi's claim, based on the following example:
Some American manufacturers that use industrial springs can buy them in China for 95% less than in the U.S. - if they cost $1.00 here, they're only 5 cents from China, shipping included. In that case, even if China's currency appreciated significantly by 30% or 40% or more, the springs from China would still cost only 7 or 8 cents, or maybe even 10 cents, and there would be NO jobs coming back to the U.S. That's just one example, but there are many other products (toys, T-shirts, shoes, low-end electronics, commodities, etc.) that are so cheap to produce in China compared to the U.S., that even a greatly-appreciated renminbi/yuan wouldn't bring any manufacturing jobs back to America, and certainly not anywhere close to 1 million jobs.
A similar point was made in a WSJ article in May, subtitled: "You're not going to change the balance of China trade by adding 25 cents to the cost of a T-shirt."
There are other reasons that a stronger renminbi wouldn't bring jobs back to America:
1. A stronger renminbi/yuan would give China an advantage for any commodities, inputs, raw materials, and energy products (oil and natural gas) that it imports, which might allow them to maintain the current prices for exports to the U.S.
2. If a stronger renminbi/yuan did make Chinese exports to America more expensive, manufacturing production and jobs would likely shift to other areas in Asia (Vietnam, Bangladesh, India, Thailand, Korea, etc.) and not back to America.
12 Comments:
Will a market for the yuan bring jobs back to the U.S.? Maybe.
Will a market for the yuan create more jobs in the U.S.? Probably.
A large market that is not generally considered when discussing U.S./China trade aspects is the rest of the world. U.S. goods will be more competitive with Chinese goods in many more markets because of a stronger yuan.
These criticisms of the benefits of a rising yuan are largely correct. However, they do center mostly on the jobs already lost, not the high-end manufacturing jobs on the margin that might be created, a much more important sector for the US economy.
It's not about jobs returning to US, it's about new jobs being created when the ordinary citizen of China will afford to buy more from US. By keeping its currency low China is limiting the growth of its internal market.
China is practicing "scorched earth Economics": they loose some by not asking for higher prices, but the countries that depend on exports to China lose more. US is not affected much or might even gain from this, but I hear that in Japan they are not very happy about it.
Austria did this in the 1870s-1880s: dumped manufactured goods on it's neighbors and refused to sell them coal and so reduced the Balkans to an agrarian economy. For exapmle, before 1900 more coal was was shipped to Rumania from Newcastle than from Austria.
China is trying to do the same with its neighbors and to soften them up a bit in preparation for some talks about disputed territories or foreign policy. Unfortunately for China, relying on exports means relying on foreign governments not going berserk and shutting down their borders to Chinese merchandise: now it looks the US government is threatening to do just that, and I suspect it's for the sake of Japan and Taiwan.
There are other manufacturing platforms in the world than China, but none quite so effective.
In any event, within 20 years China will become expensive, like Japan. Other places are cheaper, but lack the infrastructure and culture to produce for export.
Thailand will probably benefit--but they are only 60 million people.
That being said, why the fascist-commie Chinese are lionized by Dr. Perry, even when they manipulate currency, is beyond me. There is crony "capitalism" in China, no real freedom of speech, and slave labor is commonplace, often under government jurisdiction.
It is better than it was; it is far from a free market, democratic society.
Everyone talks about the jobs lost. Nobody talks about the capex transferred overseas.
Not a very impressive analysis; you focus on products like the t-shirt and ignore product categories where the geographical production decision is much more on the margin: for example, fashion and electronics products where time-in-transit makes inventory control more difficult or heavy, bulky products where shipping costs are more important.
I have a feeling this will resolve itself. Currency manipulation on this large a scale really can't go on without creating huge imbalances. Imbalances -> bubbles -> corrections
The Japanese did this for years and are still paying mightily for it.
We need to be concerned with our own business, how we conduct it and the anti-innovative tactics (mandatory echnology sharing) that the Chinese force on companies that want to do business there.
This Yuan stuff is just a distraction.
The US is stagnant for the same reason Europe and Japan are stagnant: government is now 63% of our economy - 44% direct government spending and 19% cost of regulations.
If we cut government in half, it would double the income available to everybody else. How's that for stimulus?
"However, they do center mostly on the jobs already lost, not the high-end manufacturing jobs on the margin that might be created, a much more important sector for the US economy."
For example...
However, they do center mostly on the jobs already lost, not the high-end manufacturing jobs on the margin that might be created, a much more important sector for the US economy.
Aren't you missing the point? If the USD falls, the capital investments that would be required to be competitive may not take place. Americans will clearly be poorer as a weaker USD means a greater cost of energy and food, reversing a trend that began many decades ago. With more money flowing abroad to pay for imported goods consumers will not be able to purchase the products made by high-end manufacturers in the same volumes as they used to.
Do you really think that a 25% increase in the value of the RMB will attract more factories to build semiconductors, assemble computers or TVs, or build machine tools? Have you ever tried to get competent workers trained to do a specific activity? If I want workers trained to stretchform stringers at XAC all I would need to do is make a call to the local training school in Yanliang and in a week or two I would have very highly skilled and competent workers that I could be very confident in doing the job. To do the same thing at one of the Boeing facilities would be extremely difficult. I would have to fight the union that would insist on jobs being given according to seniority instead of competence, HR people imposing all kinds of restrictions on who I could hire, specialty courses on peripheral issues, etc.
If I found that some of the workers were not performing as well as I need them to and determine that they would be better at doing something else I would have no trouble at XAC. I would assign the stretch form operator to do some other task that s/he were better able to do. Try doing that at Boeing.
The problem with the US is not labour costs. It isn't even the lack of skill sets because those can always be developed. The problem is that there is too much interference from external sources that add costs without adding much if anything in the way of benefit. I see lawsuits in the US about how women are not being given certain type of job in proportion to some standard. You don't get that in China. But if I go to a manufacturing plant in China I am much more likely to see a woman be running a production shop, or be the head planner or engineer for a project. That is because in China and in other countries people are too hungry for success to tolerate rewards that are without merit as we do. You are not promoted because you are a woman, gay, handicapped, some minority, or other irrelevant factor; you are promoted because you showed that you can make more money for the company than other people.
I hate to reach this conclusion but the US seems to be committing suicide by pursuing one bad policy after another. Taxing imports will be just another stupid policy that will do more harm than good.
It's not about jobs returning to US, it's about new jobs being created when the ordinary citizen of China will afford to buy more from US. By keeping its currency low China is limiting the growth of its internal market.
As someone who has been to China a number of times, has worked there, and likes the place, I can tell you that ordinary Chinese have done very well over the past few decades and are buying many goods and services. The problem is that the US is not good at providing those goods. They tend to come from domestic sources, Japan, Korea, or Europe. That indicates that this is more about US failure than Chinese manipulation.
Trade with Cina keeps prices in the domestic markets low and allows the poor to purchase more goods than they otherwise could. Trade has also been responsible for the transfer of power from established elites that could use their government connections to allow them to rob the consumer to a set of new players, who fight to gain share by lowering prices. That loss of power means lower prices for most goods, not just imports, and a higher standard of living for most Americans.
But the primary issue is moral. If it is immoral for me to use force to make you spend your money in ways that you would not have chosen to it is also immoral for Paul Krugman or President Obama to use the power of government to force you and other Americans to spend your money by buying goods that you did not wish to purchase in the absence of coercion. As Rothbard, Block, Bordeaux, and others have pointed out on a number of occasions, the defense of free trade is simply a moral defense of right over wrong.
The US is stagnant for the same reason Europe and Japan are stagnant: government is now 63% of our economy - 44% direct government spending and 19% cost of regulations.
You are right. This is about the growth of government overwhelming the individual and doing harm to the economy. The attack on trad is just greed pretending to be neutral economic policy.
Post a Comment
<< Home