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The purchasing power arbitrage is disappearing as Chinese wages increase, the yuan appreciates, and real American wages stagnate or decrease together with the d
by dilemma 10y ago
The purchasing power arbitrage is disappearing as Chinese wages increase, the yuan appreciates, and real American wages stagnate or decrease together with the dollar.
I think this, along with augmented production systems requiring fewer workers, is why this factory is being contemplated.
- adventured 10y agoReal American wages increase with the dollar, not decrease. The dollar climb has boosted American purchasing power dramatically. That is especially important for a nation that imports as much as the US does. Americans can buy more with their wages than they could prior to the dollar climb. That covers nearly every economy the US imports from, as the dollar has gained against essentially every currency on the planet. Simultaneously, real wage growth has been outpacing inflation for years now and is set to continue to climb at an accelerating pace due to a dramatic decrease in labor slack in the last five years.
- DrScump 10y agoReal American wages increase with the dollar I don't follow. I can see how the wage earners' buying power for imports improves with the dollar's rise against corresponding foreign currencies, but not a generalized wage increase.
- pyromine 10y agoIn general, an increasing dollar does not have effects on the real price of domestic goods, but decreases the real price of imports. Because that is no change and increased purchasing, it results in a real increase in purchasing power which is therefore an increase in real wages. You can buy a larger basket of goods because the imports cost less.
- throwaway40483 10y agoA strong dollar also reduces export, so how does this pan out net-net?
- pyromine 10y agoJust saw this, but American consumers are more sensitive to import prices than export, because consumers generally do not directly receive the proceeds of exports. Net-net, it'd be hard to say what happens long term in the economy because that has a lot to do with long-term changes in the macro environment, if economic growth remains strong consumers will continue to make out better, if the strong dollar ultimate hurts the economy (and that isn't impossible), a weakening economy hurts consumers more than the stronger dollar.
- brobinson 10y agoHow do you see the yuan appreciating from its current point? China has had a very, very large trade/current account surplus for a long time and it doesn't seem like that will change in the near future.
- dilemma 10y agoThe yuan will appreciate as the domestic Chinese market grows and the economy becomes less export-driven.
- brobinson 10y agoBut China is currently propping up the value of the yuan (after a long period of artificially keeping it low to boost exports) and are struggling to deal with their net outflow. I just don't see how their domestic consumption is going to make up for the enormous capital account deficit any time soon, and they're now starting to put restrictions on currency trading for regular citizens...
- brobinson 10y agoRelevant: https://www.bloomberg.com/news/articles/2017-01-26/world-s-biggest-real-estate-buyers-are-suddenly-short-on-cash https://www.bloomberg.com/news/articles/2017-01-26/world-s-b...