Dodson Chapter 8 Response

In Chapter 8, Dodson focuses on Chinese currency, the yuan. He explains to the reader that China’s globalization strategy has been the manipulation of its currency. From 1995-2005, the yuan in relation to the U.S. dollar was 8.3 yuan to one U.S. dollar. Dodson went on to discuss the fact that as the U.S. dollar went up in value, the yuan stayed relatively the same, making goods exported from China really cheap for the U.S. This piece made a lot of sense to me considering we buy almost everything from China. Dodson made a better attempt to explain the relation between the dollar and the yuan by introducing the Purchasing Power Parity (PPP) and the Big Mac Index. As ridiculous as it seems, the Big Mac Index really helped me better understand. In the U.S., a Big Mac would cost about $3.58, while in China it would cost about $1.83. This means that the yuan is 50% undervalued. Chinese labor costs are also especially low. They average about three percent of the workers salary in America.

The valuing of the yuan is important because it plays a big role within America, as well as other countries. We all rely on one another to purchase things we can’t produce. The huge debt that America fell into to create U.S. confidence in the great recession, made china want to get its own dollar reserve. Each thing we do as individual countries in regards to currency, will affect others globally.