http://news.bbc.co.uk/2/hi/business/6578289.stm
This is an interesting article about China's economy. We all know how much developed economies rely on cheap labor from the East. China is a leading supplier of that cheap labor. As I learned from the article they export annually goods worth 100 billion dollars. Impressive sum, hugh? I guess that this value is calculated from the export prices and not what we, as consumers, pay for it :)
I always thought that cheap labor is enough to lower the prices of the goods to minimum. It turns out that China also controls its currency- yuans. They lower the value of yuans to keep the products cheap and boost the export.
"US trade organizations have argued that by not letting the currency float freely, it gives Chinese firms an unfair edge on US companies, by making Chinese consumer goods artificially cheap."
US trade organizations oppose techniques used by Chinese government. My first thought was that it doesn't make much sense. US trade organizations would want to buy cheap goods and sell them for higher prices to Americans. The catch is that US is a big exporter as well. It is one of the reasons for America being the biggest economical power in the world. In today’s situation, because of Eastern markets, this position is endangered. It is now understandable why USA wants to cool down the pace of Chinas economical growth.
The trade organizations are upset so much, that they are trying to influence foreign economies to reform their currencies. Isn't that a great example of how international the trade is nowadays? A little bit scary but that’s capitalism.
I sometimes wonder what 18th and 19th century economists would say about modern economy. Is that what they thought would happen as a result of free international trade?
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4 comments:
This defiantly stems off of an article I had about two times ago??? It was about the US pushing China to reform their economy...while actually after doing further research i found China IS reforming their economy, only they aren’t doing it fast enough for the United States liking. The US is pushing China as much as they are because the imported items we receive from china are much less expensive than what we (produced on US soil) provided them at. Basically, consumers are buying imported items because they are less expensive (cheap labor you mentioned) so the United States (and other countries like us) are up in arms. Heck, I say "Go China!"
It does sound a lot like the article Ashley had!
Interesting how the communist economy there controls the value of their money, isn't it? China keeps talking about allowing markets to move on their own in certain situations, but if they continue to control the yuan, it will not work efficiently.
What would 19th century economists think? Hmm...I think they'd think we're nuts. :) Seriously - an economist would say that trade without barriers increases consumer surplus, which is a good thing - for consumers. All the barriers and government intervention makes the market inefficient.
Excellent job on the article analysis, Wojtek!
i have a quesion: if the chinese government stopped regulating the yuan and it's value increased to equal or larger than the dollar, how many people would that leave suddenly jobless in china? obviously, as inflation increases, factories that used to produce ultra-cheap products will have to lay-off workers, leaving the poor poorer and less able to find work. is it worth it, then, to force them to de-regulate the yuan so that american companies can make more money?
Ah...Domino, you are so good with the moral questions. Haven't you learned that economists have no morals!? lol or rather - that economics has no morals - as a science?
Incentive & Profit. I'll leave it at that. There aren't enough people in the world who are willing to do more without incentive or profit - or that the incentive is internal (feels good to do it) rather than monetary.
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