economics

[Guest guest]

Here follows but one more practical reason that the country that spends at

an incredible rate, while borrowing all its capital- and which then spends

this borrowed capital at a rate far higher than it can afford ( the US

spending for military defense/offense accounts for half that of the entire

world...)- must alter its course. Of course I would suggest that means

altering those in power. VOTE to change situation in every and any election

possible.

New inflation at a 30 % rate would be devastating to an economy already in

tatters. It would produce the same result that we observed in the former

Soviet Union.

 

 

 

Rising costs in China make the U.S. nervous

 

 

 

Whether it is huge deficits in the Sino-U.S. trade or the collapse of a

textile factory in Ohio, the U.S. always makes China-manufactured goods a

target of attack.

 

Whilst reaping the benefits of low prices, Americans similarly feel contempt

towards it. It has been asked before how the situation would change if

prices of Chinese products rise. The reality shows that if this were to

happen, Americans would not be pleased.

 

 

Higher costs boost prices

 

On the 12th June an article titled " Rising costs in China could affect

America " was published in U.S. newspaper, the " International Herald

Tribune " . The article said that rising wages and new environmental

regulations, as well as higher prices for raw materials, were pushing up the

cost of manufacturing in China. The tendency this would create for price

inflation in clothing, toys, electronics and other China exports has made

economists, manufacturers and those in the trade business anxious.

 

According to the British newspaper, the " Financial Times " , import prices of

European Union rose by 6.2% in the last 12 months up until April 2006, which

has been the largest increase in the decade. Chinese export prices increased

by 8.7%, twice as much in 2004, which has spread anxiety that the era of low

product costs brought by China may not return.

 

 

Cheap products maintain low inflation

 

Rising price is an unwelcome development for the U.S. and European central

banks. HSBC's John Butler commented that the reason for maintained low

inflation is the continuous import of low-price products. Andy Xie, a chief

economist at Morgan Stanley in Hong Kong, said that rising costs could drive

up Chinese export prices by as much as 30%. Meanwhile, higher production

costs in China would add half a percentage point per year to U.S. inflation

and help push global inflation up by 0.7% each year. The world is concerned

about the arrival of inflation now. Seven central banks, including the

European Central Bank raised borrowing costs last week.

 

However, it is the average consumer that is worried about rising prices of

Chinese products as China-made commodities have become a necessary part of

Americans' daily life. In large supermarkets such as Wal-Mart and SMS, 80%

of merchandise comes from China whilst products like clothes, household

appliances, commodities, are mostly made in China. Mona, a businessman in

Sino-U.S. import trade said that if Chinese export prices increase by 20%,

products from Latin America and Southeast Asia will take up some of market

share belonging to Chinese products. This will shrink retail profits as well

as the consumer's buying capacity.

 

 

Manufacturers and dealers face rising price pressures

 

Up until now, prices of China-made products have not increased much. Mona

said that this is because Chinese manufacturers take the losses caused by

increasing costs by themselves rather than pass on rising costs to

consumers. Tyco Electronics, a unit of Tyco International, expects labor

costs at its Chinese operations to continue going up this year, said Mike

Ratcliff, a spokesman for the company in Harrisburg, Pennsylvania. They have

to enlarge production output and keep launching new products to compensate

for higher costs. Almost half of the members of the American Chamber of

Commerce in Beijing said they were being hurt by growing personnel costs,

but in order not to lose market share, they would rather squeeze their

profit margins than pass on rising costs to consumers. Richard, President of

Alvarez & Marsal, made a matter-of-fact statement that some companies

complain that unless their product prices increase, they will face

bankruptcy.

 

However, a lot of U.S. importers think that import prices will surely

increase. Mr. Chen Gan, a commodity wholesaler in Chinatown in Huston,

imports a number of containers of commodities from China. In an interview he

said that Chinese products have the tendency of rinsing prices and prices of

his imported commodities have increased by 5% on average. A survey by Global

Sources, based in Hong Kong which helps companies source goods from China,

found that 60% of 1,139 exporters who were questioned planned to raise

prices this year. Mr. Chen Gan thinks that if export prices rise moderately,

it will not affect whole sale business much but if export prices rise by

more than 10%, it will make a big difference.

 

By People's Daily Online