China currency move may help/hurt U.S. companies

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Detroit News – 07/22/05

This really is a complex issue, the China currency pegging. It's not just a China vs. U.S. issue, but within the U.S. it's also a Automakers vs. High Tech issue. The Detroit News article points out how the currency valuation changes will help American automakers because the cost of goods imported from China will increase. But, this second article (link here) points out how it will hurt American high-tech companies (and consumers to some extent) because the costs of products contracted out to China will be higher.

The WSJ quotes (link here for subscribers) include:

“American manufacturers and labor unions hope the change will help U.S. factory sales and jobs by making U.S. goods a little more affordable abroad. The National Association of Manufacturers, which long has lobbied for a get-tough policy on China, greeted the announcement as vindication. “While the initial 2.1% revaluation is inadequate, we view it as the beginning of what should be a significant revaluation,” said John Engler, the association's president. “China's new system appears to allow revaluing the yuan as much as three-tenths of a percent each day, meaning it could move as much as 1% every three days.”

At Caterpillar Inc., the big Peoria, Ill., producer of heavy equipment, investor-relations chief Mike DeWalt said, “We think the action hey take was good, and we are supportive.” He added, however, that the small immediate strengthening of the yuan “is not going to have a very significant effect at all on our results.

Bringing up a much-discussed lean topic, will American tech companies that produce in China whine about the increased costs and say they have to pass them on to consumers (the old Price = Cost + Desired Profit formula) or will they reduce waste and keep costs down (the lean model of Profit = Market Price – Cost)??

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