In international trade, currency inflation would discourage its country's exporting and encourage importing. This is the main reason why US government takes all effort to inflate Chinese RMB currency, therefore, to encourage more US exports to China and deter further Chinese products invasion.
Following the path, Chinese government in 2007 issued a couple policies. Starting in June 1st, 2007, many items that Chinese manufacturers export would face increased tariff rates. Below are from the announcement of the State Council Tariff Regulation Committee of The People's Republic of China.
Levy 5% provisional export tariff rate on 53 steel products such as coiled, sheet, wire steel and 5 natural resources items such as Ammonium metatungstate, magnesite, Burning magnesium, etc.
Levy 10% provisional export tariff rate on 30 steel products such as steel of the shot, Angle Profile, etc. and coal tar, natural graphite, rare metal, refined lead, oxide dysprosium(Dy), oxide terbium(Tb), Not unwrought roll zinc and 21 items that are non-ferrous metal waste and scrap.
Levy 15% provisional export tariff rate on 33 items that are domestic rare metal raw mineral such as hard coke, steel billet, steel ingot, pig iron, a portion of iron alloy, fluorite, wood-non-coniferous and nickel (Ni), chromium (Cr),wolfram(W), manganese(Mn), molybdenum(Mo), rare-earth metal, etc.
The above three categories encompass 142 tax items.
Among, 110 items had non tariff before, and 32 items increased from 5% to 10%, or from 10% to 15%. China export manufacturing, and our sourcing projects that involve with above resources is encountering a significant increasing cost challenge. I bet a lot of Chinese product purchasers have had some taste already.
On the other hand, Chinese government is encouraging import by lowering provisional tariffs will apply to 209 types of imported products. Among these, key parts and components such as positive displacement pumps, seals, parts for roller bearings and valves, compressors and parts for air-conditioning machines and refrigerators, parts for engineering machines, parts for cameras, parts for television sets, and lenses for video cameras, will be subject to provisional tariff rates of 2-6%. Certain products for daily use will also enjoy lower provisional import tariff rates of 6-17%. These mainly include baby food, kitchen utensils, tableware, food processors, corrective lenses, building materials, ornamental ceramic articles and household appliances (hktdc.com, 2007). Before, some products' going-into-China tariff could be as high as 25%.Under conforming with WTO obligation pressure, Chinese currency is undergoing around 6% inflation in the last couple of month. On the other hand, US currency is depreciating the same value when purchasing from China.
What does that mean for our China Sourcing Business? We need to pay extra 6% for everything we buy from China. For common US consumers, in about 2 month, they would start to feel the their luxury life has some change, they would be paying more to buy less.
This might be something US citizens not really like to see. However, this is what lots of enthusiasts really liked trying to use US exports to gain back job opportunities. But does it really work?
The trade deficit with China might be able to improve with more exports. Currently it's 1 to 5 in term of Exporting comparing to Importing trade with China (U.S. Census Bureau's data, 2007).
However, is Chinese currency inflation a good way to encourage exporting to China by sacrificing many consumers' lifestyle?
Use the link below or see attached, let's take a look at China Customs' number on export-to-overseas (yellow) and import-into-China (blue) in 2005. USA just doesn't do as close to Japan and Korea, not even as well as EU.
- In 2005 Japan sold almost $100 billion worth of products to China
- The U.S. only sold about half that much, even though our economy size is 2.5 times of Japan's
- Even a comparable EU (in terms of both cultural similarity and GDP clout) did 50% better than we did
US companies haven't do a good job in the history. How much do you think Chinese currency inflation could change the current trade deficit and make us do better?
This might be able to tell how much we are shooting at a wrong target, Chinese currency.
Some Chinese consumer research shows, Chinese consumers usually prefer US products over any other country's.
- Are there something missing, why China is the only one to blame?
- Does US company really understand Chinese market?
- Are there some education needed to equip US companies to sell more to Chinese? For American exporters, there are a lot to learn about the other side of the world, China. For someone who's interested to find out answers to this topic, you can visit http://www.sellinasia.com/.
Like many Chinese manufacturers are losing their jobs, a lot of sourcing consultants like us would soon join them in the States. It is worthy only if US exporting could land us more jobs, right?
However, did you know,
“If you took every one single job in the US today and shipped it to China,… It would still have labor surplus (http://www.albinoblacksheep.com/video/shifthappens).”
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