The impact of China’s currency move

Jeremy Hobson Jun 21, 2010

The impact of China’s currency move

Jeremy Hobson Jun 21, 2010


Kai Ryssdal:Scott’s one-child piece is coming up in just a bit, but there is at least one more thing to say about this currency story. The White House said today the decision was encouraging, which last time I checked was bureaucrat-ese for “Yeah, we’re going to see how it goes.”

Policy makers in the U.S — and Congress specifically — have been pushing the Chinese to let the yuan appreciate for years. They say that’s the quickest way to right the serious U.S. trade deficit with China.

Marketplace’s Jeremy Hobson reports ordinary Chinese might get more out of the decision than Americans will.

Jeremy Hobson: There’s no doubt about it, says Boris Schlossberg, the director of currency research at GFT. He says a stronger yuan will mean more on the streets of Beijing than it does in Baltimore.

Boris Schlossberg: Even a small appreciation of the yuan gives the average Chinese worker more value for his money. So clearly from that point of view, I think the Chinese worker does win.

Schlossberg says as long as that Chinese worker uses his money to buy imported goods, he’ll get more bang for his buck.

Schlossberg: Even if the yuan appreciates by 5 percent by the year end that means his salary will be able to buy 5 percent more goods.

But the dollar’s been getting more valuable compared to other key currencies over the last couple years, and I don’t feel any richer.

Marc Chandler, the head of currency strategy at Brown Brothers Harriman, says that’s because it’s not all about the currency. By the time an imported product makes it to the shelf of the local supermarket, he says, the price has been impacted by the cost of shipping, storage and marketing.

Marc Chandler: And each gets their own markup. So by the time we’re done, the finished good that we buy at a store as consumers might be as much as 50 percent higher.

And therefore, any small fluctuation in the currency is a drop in the bucket. Chandler says we feel currency swings the most when we travel overseas and we change our dollars into local money. But he says:

Chandler: Most Americans don’t travel overseas, we tend to do our vacations here within the States. When we do go overseas, among the things that we’re looking at very often is not the currency and how cheap it is.

So what about the idea that having a weaker currency is better for jobs? That cheaper goods will bring in more business and lead to more domestic hires? Economist David Backus at NYU’s Stern School of Business says that’s a nice theory, but it’s hard to prove.

David Backus: There are lots of factors going on, this is one of them. But it’s not the only one, and it’s very hard to detect an effect from that on its own.

Backus says China’s currency move will have a much bigger impact on global politics than it will on you and me.

In New York, I’m Jeremy Hobson for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.