Lower dollar = higher exports is fallacy ?

[rp0x]

The reason the Chinese are being pressured to float their currency is because its artificial weakness substantially distorts the market, and causes people to make decisions that they wouldn't otherwise make.

http://edition.cnn.com/2005/BUSINESS/05/18/china.yuan/index.html

This is what I have see repeatedly.

That fixed exchange rate has been the focus of claims by critics in the United States that its prices from exported goods are artificially low.
The low prices, critics say, put unfair pressure on U.S. manufacturers, who cannot compete on the "China price" of goods such as textiles, electronics, and other manufactured goods.

Do you agree with the above statements ?

I understand your argument that it is distortionary . (the article I linked to even says that too). But, shouldn't we make THAT as the point instead of saying their exports are cheaper and it is unfair to US manufacturers ? Shouldn't we be focusing on the point that their practices are unsustainable ?

 

[AceNZ]

That fixed exchange rate has been the focus of claims by critics in the United States that its prices from exported goods are artificially low.
The low prices, critics say, put unfair pressure on U.S. manufacturers, who cannot compete on the "China price" of goods such as textiles, electronics, and other manufactured goods.

Do you agree with the above statements ?

Yes, but it's not the whole story.

I understand your argument that it is distortionary . (the article I linked to even says that too). But, shouldn't we make THAT as the point instead of saying their exports are cheaper and it is unfair to US manufacturers ? Shouldn't we be focusing on the point that their practices are unsustainable ?

Yes, I agree that the argument should really be based on the distortionary aspects. Even today, it's still considered a smart business move to close down US-based manufacturing and move it to China. If people really understood how the economic situation is badly distorted and how fragile the Chinese banking system is, they would definitely think twice (which is why the banking aspect is close to being a Chinese state secret).

The press seem to be focused on the problems from the short-term perspective of US businesses, which is why they emphasize prices. Long-term, if the US wants to "win" against Chinese imports, one could argue that we should let them continue to abuse themselves. The problem is that they are also abusing the rest of us in the process.

Of course the Chinese aren't the only ones playing the distortion game. For example the US government distorts many widely-published statistics that are relied on by many to guide investments, timing, etc -- things like the CPI, GDP, unemployment (did you know that real unemployment in the US is around 12%, real inflation is around 10% and that we are already in a recession?).

 

[katao]

It is a good time to be in the computer software business exporting overseas though (my business). No raw goods to pay higher prices for.

But overall, I agree with RP that using the argument that higher exports makes up for all the problems of a weak dollar is a fallacy.

 

[PredatorOC]

It is a good time to be in the computer software business exporting overseas though (my business). No raw goods to pay higher prices for.

But this will be momentary as well. Eventually, as consumer prices rise, you and your employees will have to keep eating and thus will need more pay. This of course will force you to raise your prices.

I'm sure you already know this, but I felt it has to be stressed that there are very few winners when the price increases from inflation kick in.

For some reason the vocabulary has been distorted. Inflation use to mean an increase of the monetary base, while now it is used to mean increases in consumer prices. Anything to keep the scam going...

 

[AceNZ]

It is a good time to be in the computer software business exporting overseas though (my business). No raw goods to pay higher prices for.

Be careful. Don't forget about food, energy (electricity, oil, gas), computer parts, and even basic day-to-day supplies. They may not be direct inputs to your product, but they are required costs for you and the people who work for you. The impact might not be as big as for a commodity-oriented business, but if you want to maintain the same standard of living, your prices will have to go up, too.

Also, don't forget about inflation (which is separate from the strength of the dollar). Have you been able to raise your prices 10% per year? If not, then the purchasing power of the money you're earning has been declining.

This is why I hate it when businesses offer pay raises that "keep up with inflation", and use the CPI as their base. CPI doesn't include food or energy, which are usually the first things to feel the hit from inflation. So an annual raise based on the CPI is really an annual pay cut....