Really...you gonna stick with your story there? So, if tomorrow China let its currency float and it rose 50%, they'd still have all this "cheap labor supply"? Currency differential does matter since companies in the US have to translate those currency differentials back to their financial statements here in the US when factoring in their operating costs.
Yes, they would. The labor-cost differential is not 2:1... more like 20:1. Whether or not China allows its currency to float is a total non-issue... unless the Yuan starts trading at 150 or so... and THAT ain't gonna happen.
You seem to be missing a point here. The US doesn't have to devalue its currency. The markets will determine that and the dollar is going to stay relatively weak in the next decade. On the other hand, China DOES have to artificially deflate their currency. So what happens when they can't keep it down? What happens if Chinese consumers don't consume and they stay a net exporting country in a weak economy? You think it's going to be so easy for them to continue trying to deflate their currency in that environment when their export consumers are no longer purchasing either? The point you are missing is that the countries which have high production capabilities and are net importers have the most to gain moving forward.
OK.. I'm not arguing points with you. You apparently understand nothing. China is a huge net exporter... not importer.
All this talk of exchange rates adjusting has no relevance to what Larry Summers said - OK, what is it that the Obama folks will find to export in greater numbers? E.G. The widget puzzle. 1) Who is gonna design the good new widgets? 2) Who is gonna make them? 3) And who is gonna get the new customers in foreign coungtries (sales)? All three categories are facing huge tax increases and regulatory hurdles from Washington. Can they (1,2,3) compete overseas with the additional burdens? This is why UE is near 10% now. Devaluing the currency is pushing on a string: exports may go up, but so do Treasury interest rates. That doesn't do Obama any good. Bottom line - these guys are all smoke and mirrors. I used to be Series 7. Everybody then called it "tap-dance"
"The United States averted a financial catastrophe but sustainable recovery depends on redirecting the economy away from consumption, a top White House economic adviser said Friday.... Sound like the financial catastrophe was merely postponed unless we redirect the economy away from consumption and towards exports, at least by Summers' (not a fan of this individual at all) own admission.
OK, now I see what he is talking about. Different spin on the plan a few months ago to tax all U.S. based corps on foreign earnings. These idiot politicians (with advanced degress in econ) although they have never run a company, forever think they can find a "silver bullet", tweak the tax code, and get something for nothing. Sommers is looking at huge multi-nationals: PG, KFT, KO, etc. They think if they can just make these companies move all their manufacturing back to the U.S., magically, unemployment will be solved. But what these idiots don't understand is that the little competive edge these companies have is in mfg and packaging locally, in the foreign market where they sell. If KO had to bottle all its soft drinks for foreign sales in the U.S., they could never sell anything oversees. Shipping and storage would kill them. Same with hundreds of other businesses. Larry Sommers is a moron.
You think workers in Germany of Japan earn $5 an hour wages? In fact, hourly wages in Germany (in USD) are higher than in the US, i.e. your supposed wage disadvantage would crush any hopes for Germany (or Japan, or Switzerland etc.) to export anything. Yet the opposite is the truth, at least for the past 50 years. How the hell are these countries able to export while the US is whining about cheap wages in Asia? The US' problem is not cheap wages in Asia, the problem is highschool kids high on weed that are unable or unwilling (!) to invent, produce or engineer *JACKSHIT*. MTV created a generation that expects they will all become rock or hip hop stars that will be featured on Cribs one day. What ever happened to Americans being hungry to become an entrepreneur?
What you don't understand is that labor costs may only account for 10% of the cost of a product. So even if the labor-cost difference is 20-1, currency fluctuations can wipe out that advantage. I think the real reason business produces in China is to skirt environmental protections and other safety regulations.