Who is affected by the currency Exchange? Everyone, including you and me.
The currency fight overseas is a two side coin. The importing companies disagree with the Obama administration pressing China to raise the value of its currency Versus Exporting companies view that it is an opportunity to increase their profits and business. An example is PS Brands, one of the biggest American importers of socks whose main supplier is demanding shorter contracts at higher prices, they only maintain the prices 30 or 45 days out because the dollar could lose more value. On other side is Staco´s Systems, a maker of aerospace electronics, saying that the weaker USD currency is a good news as stronger Chinese renminbi would make their prices more attractive to buyers in China.
At the Group of 20 summit in Seoul, South Korea last week the major discussion point for all the countries was the currency exchange rate. The United States, and almost all other developed countries, feel China is keeping the value of its renminbi artificially low to help continue their export sales. They are encouraging China to float the value of its currency, allowing it to rise and fall with demand, like every other major economy does. The Chinese are reluctant to let the currency find its level in the open market. As the value of the Chinese currency growth the costs of their exports increases also. As the costs rise prices must be increased to maintain profitability but this can result in reduced sales in the retail market.
Companies working in the developed world have different views on the effects of floating the renminbi. Retailers and companies that buy goods in China to sell in Europe and America view an increase in value as bad. The increase will raise their costs and their selling prices causing a loss in sales. Companies based in the developed world look on it as a good thing. Raising the value of the renminbi causes their products to cost less in the world market.
However Obama administration wants fast action because it worries that the growing United States deficit will continue to threaten jobs and economic growth, but Chinese officials argue that their companies operate on thin profit margins and letting the renminbi rise too quickly could affect tens of millions of jobs.
Meanwhile the currency fight with China divides U.S. business, What American officials want from stronger renminbi relative to the dollar: more exports and job creation. But Mr Levy Chief executive of PS Brands says the rise of the renminbi is going to have cruel side effects: job losses in America´s retail sector and higher prices for consumers.
The question is who will the Obama administration help? The importers depending on cheap Chinese goods or the exporters looking for advantages in the global market.
Barboza, D (2010, November 16) Currency fight with China divides U.S. business. The New York Times, Retrieved November 17, 2010 from
Thursday 18 November 2010
2 comments:
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If I were Obama, I would decide this situation basing on what are the strong impact to make more jobs for society. Therefore, by my guess,I will support the exporter who can create more jobs in the country. Moreover, I think this choice will improve competitiveness for the nation to compete with other countries in the future too.
ReplyDeleteI think both parties concerns, China's and the US's, are understandable, but it would help both in the long run, and every one else, to have as much trade as possible, with the different currencies trading at their "real" values as determined by markets.
ReplyDeleteThat would mean job losses in some sectors, probably in many countries, but it would also create new opportunities that would flow from the wealth created by the increase in trade, which tends to benefit everyone.
I think China should free its currencies as quickly as it can, and teh US should reciprocate by abolishing its protection for domestic industries like farming. If US farms can not run competitively, they should be allowed to fail.
But I'm not an economist, so perhaps there is some awful error in my reasoning. My primary concern was fairness: it is not fair to protect some people at the expense of a whole nation, which is often done, for example when Thailand, in order to protect small, inefficient shops, does not allow super-stores to be built everywhere.