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It’s always easier to blame others than to take responsibility for our own actions.
The same holds true with the ongoing currency war between the United States policymakers and the Chinese manipulation of its yuan. The rhetoric makes it seem like the yuan’s appreciation is a panacea to all the job losses and the ailing economy at home, as if it will act as a magic bullet and the policymakers can just hold their hands up and do nothing.
Blaming the yuan could be a good political maneuver for the next election cycle, however it could hurt the next generation of Americans if not assessed thoughtfully. What is really unfortunate is nobody seems to be talking about the most important aspect of growing the economy — innovation.
The issue of currency manipulation should have been raised years ago. Now it’s too late, where focusing exclusively on the yuan by U.S. policymakers today looks like a losing game. Yuan’s appreciation, believe it or not, will work in the Chinese favor rather than help create U.S. jobs and make U.S. manufacturing competitive.
Studies have shown that cost of production in China is skyrocketing, meaning Chinese products will no longer remain cheap. But this doesn’t guarantee that U.S. products will fill the gap in place of expensive Chinese products, simply because American manufacturing is also losing the war against innovation.
Let’s say the yuan is appreciates by 50 to 100 percent. Wages and costs overrun for manufacturing products in China will increase, yet U.S. manufacturing will remain unlikely to gain its lost market share. Because China is not cheap anymore, won’t barricade companies try to move into India, Brazil, South Africa or Vietnam to manufacture inexpensive products rather than turn back to America?
This is the stupidity of capitalism, not the currency. This is how capitalism works and how it survives — through exploiting resources, both human and natural, by paying a minimal price. India, which is gearing behind China in its race to economic growth, poses enormous potential for multinationals to produce goods and services.
And it’s not only India and Brazil, but the whole of Africa has yet to be tapped for its natural and human capital, which will potentially replace China as a hub for cheap labor. On the other hand, the Chinese government has realized already that an exports-based economy won’t be sustainable. Hence, the policies have been put forth to boost the domestic consumption by its people, which means they will have no choice but to appreciate yuan to increase the purchasing power of its people.
Look at the past few months — the yuan has appreciated about 20 percent and the government further appreciates it because it will act in its favor. Even state-owned banks with branches in New York and two other cities recently presented to customers the option to open accounts on yuan’s denomination. This shows that China is determined to make the yuan an international reserve currency similar to the dollar or euro. So when the big jump in yuan’s appreciation happens, Americans shouldn’t take it as their victory. China was going to do that anyway.
We have to ask ourselves: What is the winning way? I think it’s the innovation in U.S. manufacturing that will make unique products and services to add true value. American manufacturing is ailing because it is not innovating anymore, so it is not competitive.
An example is the paper industry. Paper mills have moved overseas, while more and more are being closed here at home. The reason is not only because of cheap labor and forest resources in Brazil, Malaysia or Indonesia. Mills overseas are streamlining manufacturing, bringing in new technology and innovating new products, while many mills at home are still running with paper machines that are decades old, have no lean manufacturing in place and no innovation for new products and services.
My own experience as an innovation consultant at Eureka Ranch translates small business in the U.S. as peril because they are not innovating. And it’s the small business that creates the most jobs, not the other way around. Big corporations will keep stockpiling profits by running operations overseas, while small business will be hard hit due to massive competition from foreign-made goods and services.
It’s still not too late for policymakers to focus on innovation, invest more on research and development, clean energy and educate more engineers. Not taking bold action for innovation will not only make the U.S. lag far behind, but also diminish the prosperity it has garnered, eventually making American civilization a story of the past.
