May 29, 2013

Last summer, the exchange rate of the Dollar to the Yuan was 6.37 to 1.
Today, it’s 6.13 to 1 – a drop of nearly 4%.

While we haven’t been seeing much in the way of price increases this year from our Chinese suppliers, the overall trend of the Yuan vs. the Dollar exchange rate is that the Chinese Yuan will grow stronger. The U.S.’s continued money printing and running deficits contribute to this, along with international pressure for the Chinese governent to allow the Yuan to float freely on international currency markets. Beijing has slowly been widening the trading band (the amount the Yuan can fluctuate in any one day); last year it could fluctuate .5% per day, and then they widened it to 1%. Now they’re discussing opening it further to +/-1%.

In the long term this will eventually mean price increases, but… it’s still going to hard for the U.S. to compete with China’s $2.00 an hour average manufacturing wage, vs the $20.00 an hour manufacturing wage of the U.S.

Some Chinese manufacturers will continue to increase productivity by investing in late model equipment, so this will offset a little of the loss of the dollar’s buying power.