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What’s to stop exporting companies from increasing prices? Say I’m a Chinese manufacturer of plates. I have an American customer buying 6m yuan worth every yea

What’s to stop exporting companies from increasing prices? Say I’m a Chinese manufacturer of plates. I have an American customer buying 6m yuan worth every year. Previously that cost them $1m USD. Now it only costs them $857k. In both cases I’m getting 6m yuan, so I’m happy. Or, do I increase the price to 7m yuan because I know that’s what the customer Usually pays, now I’m VERY happy? Does this achieve the goal of growth (6m to 7m yuan) or does it not count because the volume stayed the same?

scaryclam 7y ago
From what I understand, nothing stops that from happening really. Though if a company is selling both to the US and to somewhere else that doesn't use the dollar, the cost increase may end up damaging business elsewhere. Giving the US customer a price hike and not others is also likely to damage business relations, so generally it seems that it's safer and less complicated to keep the price the same and just sell more units.
- AnthonyMouse 7y ago
  > Though if a company is selling both to the US and to somewhere else that doesn't use the dollar, the cost increase may end up damaging business elsewhere. Unless the "somewhere else" uses the yuan, currency devaluation doesn't work that way. Even if the exchange rate is tied to the dollar by fiat, devaluing it does so against all other currencies, because nobody is going to accept less yuan for their euros than they could get by exchanging euros for dollars and then dollars for yuan. But that still doesn't mean they can raise prices, because the whole point of the currency devaluation is to make them more competitive. Raising prices does the opposite. And you can't claim the whole thing as margin if that would have caused you to lose the contract to begin with, which was the original reason for the currency devaluation. You may also have to compete with other local suppliers who are operating under the same nominal reduction in local costs.
  - rtkwe 7y ago
    > Even if the exchange rate is tied to the dollar by fiat, devaluing it does so against all other currencies, because nobody is going to accept less yuan for their euros than they could get by exchanging euros for dollars and then dollars for yuan. Depends on the fees at each hop. A small fee could eat up the whole arbitration opportunity for our hypothetical EU or US buyer.
    - AnthonyMouse 7y ago
      Except that nobody actually does it that way because the fact that they (including large players that don't pay anyone commissions) could do it just increases the number of yuan anyone can get for a euro.
joshuafkon 7y ago
Well, currently (more or less) the devaluation just offsets the new tariffs that have been imposed. So in real terms there wouldn’t be a huge change. Absent the tariffs it would depend on the specific supply and demand for the good. I suspect both the manufacturer and the customer would split the value in some way. Interestingly, the growth to the economy arises through how the devaluation impacts the savings and consumption rate for the countries in question. Weakening the yuan depresses Chinese household consumption and subsidies foreign household consumption. It is this change in national savings and consumption that drives the trade balance.
- rbavocadotree 7y ago
  Why does weakening the yuan depress Chinese household consumption? Aren't households buying Chinese goods with yuan, and therefore a weakening currency shouldn't matter? Or is it that they have less purchasing power for foreign goods and this effects household consumption?
  - gamedori 7y ago
    Presumably a lot of domestic Chinese goods require materials from abroad to produce. Remember that until a few years ago China had to import the tips for ballpoint pens.
  - ww520 7y ago
    A household has a fixed amount of yuan. More expensive foreign goods take up a larger portion of that amount, leaving less for domestic consumption. Imagine every household does it, leading to less demand for domestic goods.
    - 9nGQluzmnq3M 7y ago
      Alternatively, households stop buying expensive foreign goods and substitute cheaper but potentially inferior domestic goods (eg. baby formula that may be laced with melamine). So domestic manufacturers can still win, even if households don't.
vinaypai 7y ago
The idea is that the cheaper effective prices encourages foreign buyers to buy more, generating more economic activity. Of course it also makes imports more expensive but if the country is a net exporter, the net effect is positive for them.
rubber_duck 7y ago
Well it subsidies exporters and debtors (unless your debt is in foreign currency) while punishing importers and savers
onepointsixC 7y ago
Sure but there's all the US tariffs which artificially increased the prices in the first place. Furthermore there's the inflationary effect of the currency devaluation. China imports lots of raw materials for manufacturing as well as food and energy. So your costs to making that plate are increasing and the wages you pay your workers isn't worth as much as it used to be. Yuan devaluation effectively takes wealth from all Chinese and puts it into the hands of Chinese exporters.
dragonsh 7y ago
Well here except for the labor costs, raw material and machinery costs will increases. Earlier need to pay less but need to pay more due to devaluation. So it reduces profits and there by investments and capital expenditure. That's the reason trade war is reverberated across globe especially in raw material and component countries like Australia, Germany, France, Japan and Korea. This will bring down a global slow down not specific to China and USA. Since Global trade is always multi-lateral and impact can't be gauged completely. Moreover investments are driven by perception and this lower profits and growth outlook will dampen the overall sentiments.
zhte415 7y ago
What's to stop a question? That depends on how you write your contract. FOB or CIF? CFR perhaps. And what plates? Trade finance? Company finance? LOC? Volume of plates, consistency, mass, packing material, details on delivery? Trade shipping contracts do go into 50 pages for a reason.

scaryclam 7y ago

From what I understand, nothing stops that from happening really. Though if a company is selling both to the US and to somewhere else that doesn't use the dollar, the cost increase may end up damaging business elsewhere. Giving the US customer a price hike and not others is also likely to damage business relations, so generally it seems that it's safer and less complicated to keep the price the same and just sell more units.

AnthonyMouse 7y ago
> Though if a company is selling both to the US and to somewhere else that doesn't use the dollar, the cost increase may end up damaging business elsewhere. Unless the "somewhere else" uses the yuan, currency devaluation doesn't work that way. Even if the exchange rate is tied to the dollar by fiat, devaluing it does so against all other currencies, because nobody is going to accept less yuan for their euros than they could get by exchanging euros for dollars and then dollars for yuan. But that still doesn't mean they can raise prices, because the whole point of the currency devaluation is to make them more competitive. Raising prices does the opposite. And you can't claim the whole thing as margin if that would have caused you to lose the contract to begin with, which was the original reason for the currency devaluation. You may also have to compete with other local suppliers who are operating under the same nominal reduction in local costs.
- rtkwe 7y ago
  > Even if the exchange rate is tied to the dollar by fiat, devaluing it does so against all other currencies, because nobody is going to accept less yuan for their euros than they could get by exchanging euros for dollars and then dollars for yuan. Depends on the fees at each hop. A small fee could eat up the whole arbitration opportunity for our hypothetical EU or US buyer.
  - AnthonyMouse 7y ago
    Except that nobody actually does it that way because the fact that they (including large players that don't pay anyone commissions) could do it just increases the number of yuan anyone can get for a euro.

joshuafkon 7y ago

Well, currently (more or less) the devaluation just offsets the new tariffs that have been imposed. So in real terms there wouldn’t be a huge change. Absent the tariffs it would depend on the specific supply and demand for the good. I suspect both the manufacturer and the customer would split the value in some way. Interestingly, the growth to the economy arises through how the devaluation impacts the savings and consumption rate for the countries in question. Weakening the yuan depresses Chinese household consumption and subsidies foreign household consumption. It is this change in national savings and consumption that drives the trade balance.

rbavocadotree 7y ago
Why does weakening the yuan depress Chinese household consumption? Aren't households buying Chinese goods with yuan, and therefore a weakening currency shouldn't matter? Or is it that they have less purchasing power for foreign goods and this effects household consumption?
- gamedori 7y ago
  Presumably a lot of domestic Chinese goods require materials from abroad to produce. Remember that until a few years ago China had to import the tips for ballpoint pens.
- ww520 7y ago
  A household has a fixed amount of yuan. More expensive foreign goods take up a larger portion of that amount, leaving less for domestic consumption. Imagine every household does it, leading to less demand for domestic goods.
  - 9nGQluzmnq3M 7y ago
    Alternatively, households stop buying expensive foreign goods and substitute cheaper but potentially inferior domestic goods (eg. baby formula that may be laced with melamine). So domestic manufacturers can still win, even if households don't.

vinaypai 7y ago

The idea is that the cheaper effective prices encourages foreign buyers to buy more, generating more economic activity. Of course it also makes imports more expensive but if the country is a net exporter, the net effect is positive for them.

rubber_duck 7y ago

Well it subsidies exporters and debtors (unless your debt is in foreign currency) while punishing importers and savers

onepointsixC 7y ago

Sure but there's all the US tariffs which artificially increased the prices in the first place. Furthermore there's the inflationary effect of the currency devaluation. China imports lots of raw materials for manufacturing as well as food and energy. So your costs to making that plate are increasing and the wages you pay your workers isn't worth as much as it used to be. Yuan devaluation effectively takes wealth from all Chinese and puts it into the hands of Chinese exporters.

dragonsh 7y ago

Well here except for the labor costs, raw material and machinery costs will increases. Earlier need to pay less but need to pay more due to devaluation. So it reduces profits and there by investments and capital expenditure. That's the reason trade war is reverberated across globe especially in raw material and component countries like Australia, Germany, France, Japan and Korea. This will bring down a global slow down not specific to China and USA. Since Global trade is always multi-lateral and impact can't be gauged completely. Moreover investments are driven by perception and this lower profits and growth outlook will dampen the overall sentiments.

zhte415 7y ago

What's to stop a question? That depends on how you write your contract. FOB or CIF? CFR perhaps. And what plates? Trade finance? Company finance? LOC? Volume of plates, consistency, mass, packing material, details on delivery? Trade shipping contracts do go into 50 pages for a reason.