As the dollar continues its forced decline against those of its major trading partners, one gets the distinct feeling that the powers-that-be in Washington DC are fighting the wrong war. Let’s examine the objectives of this conflict; Uncle Sam believes that, by pressurizing China over its currency, the renminbi, it can a) increase the competitiveness of the goods it exports and b) preserve the jobs of those manufacturing and transporting said goods. “That’s nonsense”, suggest analysts at “Werner International”, “because, although China’s workforce is no longer the cheapest, it still undercuts that of the US by some considerable margin; a margin that even a 20% appreciation in the renminbi wouldn’t reduce to the point where the US could compete on pricing”.
Pricing is key and, like it or not, China still runs the show on that front. When those consumers were able to avail themselves of an abundance of credit, the price premium attached to the perceived higher quality of US exports could be easily offset by their desirability but now, consumers around the world, especially those in developed countries, face pay freezes, tax hikes and reduced job security: advantage, China!!
According to “Werner International”, the US should be far more focused on the re-tooling of their economy and their education systems to leverage the vast wealth tied up in the intellectual property rights and technological innovations that developing countries like China and others will pay handsomely to exploit. “Even if China allowed the renminbi to appreciate significantly against the US dollar – which it won’t � production will simply flow to countries like Vietnam, Thailand, Laos and Indonesia. The blue collar American laborer in Cleveland, Detroit or Pittsburgh isn’t likely to get a look in and, to be perfectly honest, we don’t think he want it; especially at the salary his Asian counterpart would take it for”, said the “Werner International” analyst.
One thing is certain and that is that the next decade will prove to be tremendously challenging for the US and other developed nations hoping to export their way out of crippling debt burdens. Washington undoubtedly recognizes this but is too mindful of the voting power that those most affected command. It’s likely that a middle-aged blue collar laborer in Pennsylvania who loses his job will be unable to compete in the new reality unless he retrains or moves to Ho Chi Minh City but, rest assured, before he does either, he will almost certainly be determined to exact retribution at the poll booths, if not in the November mid-terms then probably at the next general election.
The “Werner International” analyst concluded by saying, “The kind of export jobs that the US is trying hardest to preserve have already gone overseas and, by debasing the dollar, they risk driving up the price of imports like crude oil and, eventually, shattering their already punch-drunk recovery. It’s time to wave the white flag, concede the battle and move on to the war they can win”.