In the news, you often see that the US accuses China of being a currency manipulator by artificially keeping their currency low. If their currency were allowed to rise, goods produced in China would get more expensive in the US and we would buy less of them. Higher prices would mean that Americans would have less money to buy other goods, lowering the overall American standard of living. This means that since China keeps its currency low with respect to the US dollar, China both encourages a trade surplus with the US and provides our citizens with a higher standard of living.
Raising the value of the Chinese currency with respect to the US dollar would make US products cheaper to buy in China, perhaps creating more American jobs if the jobs were related to products or services Chinese citizens would want and could afford to buy. Being a communist country, China has a huge workforce it needs to keep employed, which it does by keeping its currency low.
Therefore, so long as it has a large pool of workers, China will likely continue to provide us with cheap labor, because it needs to maintain employment for its workers. American businesses can leverage China’s cheap labor by outsourcing. Outsourcing labor to China is not restricted to large multinational companies. It is available to small businesses, too, through websites like Elance.com or Guru.com.
How can you use China’s currency manipulation to your advantage?
