Chapter 8

In chapter 8 Dodson informs us that the keystone to China’s globalization strategy has been the manipulation of its currency, the Yuan. China’s currency is like an “explosion” and what I mean by that is when China and the U.S. exchange money. For about 10 years China valued the Yuan at 8.3 Yuan to every U.S. dollar. As the dollar increased in value, the Yuan’s own value remained the same making goods exported out of China cheaper for Americans. The best way to determine currency is by a Purchasing Power Parity that compares the cost of a basket of goods in a standard country. However; since China is always full of “surprises” their hidden subsidy is an undervalued Yuan that makes products sold in America cheaper than they would otherwise be. The problem with this is that the Chinese exchange rate does affect the cost of goods that flow from China into the U.S.; the value of Yuan is only one part of the cost structure of products. Even still, other, more inflexible costs in the supply chain go into the price structure of a product, including the cost of materials, labor costs, manufacture markups, middlemen, and retail markups. Effectively the only costs that Chinese producers can influence are labor costs, assuming their margins are as thin as the average suppliers. The costs of materials that go into product manufacture tend to be the same around the world, although a stronger Yuan would tend to make the import of some materials cheaper for Chinese producers.