China Devaluing Currency And What It Means For Global Business

By now, everyone has seen the news that China has devalued its currency. This means the Yuan Renminbi is weaker. When you exchange currency, you can now buy more Yuan for each dollar spent. If China is really the world’s second largest economy, than the Renminbi (People’s Currency) effects world markets. China is always accused of currency manipulation. Who is to blame? Who can be blamed in international business?

This is being criticized by every foreign government and many businesses that trade with China. After all, if Chinese money is weaker, that means that US products sold into China become more expensive. Take the example of Mandarin Oranges for sale in China, but imported from the USA. An 8 kg box costs between $20 and $30. With the weaker Chinese currency, this could cost 25 percent more this year. Thus, the imported oranges are more expensive and the Chinese will buy less of them from the USA, critics say.

On the flip side, items we buy from China will cost less. Importers of (e.g.) Chinese toys will pay less. If the US importers keep the price constant, then the importers will benefit and make more money.

Here is the problem. If your firm is selling a price-based commodity to Chinese buyers (rice, soy, oil, hogs, corn, cotton, etc.) your sales may suffer because your price is too high.

But if you are selling iPhones or BMW’s, the higher price may not matter. Higher prices may even work as an advantage, because the products are more expensive and hence more prestigious. Are we really going to once again, blame currency instead of the real problem….our laziness to go after and service global markets efficiently?

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