Thank You, China, for Keeping the Renminbi Cheap

BAIZHU CHEN, professor of clinical finance and business economics:

“I live in Los Angeles. Like many other Angelenos, I used to shop at Vons or Ralph’s or Albertsons for milk. Well, not any more. A Target store in the neighborhood recently started to stock its shelves with daily groceries, including milk. Regular milk at Vons or Ralph’s or Albertsons is $3.50 per half gallon. Organic milk at the Target store: $3.13. Like my middle class neighbors, I quickly abandoned the traditional grocery stores to shop for my daily groceries at Target.

Nobody has complained about Target selling cheap milk. My neighbor, Johnny, who lives down the street, used to work for Vons, in the dairy department. He was laid off. He isn’t complaining about Target either. Johnny now buys his milk from Target. In fact, he buys a lot of organic milk there to make organic cookies in the little doughnut shop that he opened not long ago. Business has been great. Johnny also buys a lot of organic milk because his son, Mickey, drinks a lot of milk and is overweight. But Johnny isn’t complaining about Target selling milk at a price that Vons can’t compete with. Nor is he complaining about Target for Mickey’s milk.

How Target is able to sell milk at such a bargain prices is a mystery to people. It may be because Target has a better supply chain management system. Or Target shareholders are willing to forgo fat profit margins. Or maybe its employees are less well paid. Or maybe the Target store has a giant holy cow hidden somewhere in a dark room making milk just like turning on a faucet.  But nobody really cares, and nobody is complaining.

So why should we complain about China selling us cheap clothes, Christmas ornaments, or chicken breast jerky? We blame China for selling us cheap products because it doesn’t pay its workers well enough. We blame China for selling us cheap products because it keeps its currency undervalued. We blame China for causing our overconsumption and excessive borrowing because China sells products to us too cheaply. We have coined a sophisticated phrase, “global imbalance,” to describe our overconsumption and excess borrowing, and we lay the blame on China. We put pressure on China to reevaluate its currency so that it will not sell us cheap products anymore. We are just like food addicts whose habit of excessive eating is too strong to control and only way we can eat less is by asking restaurants to sell us food at higher prices. We call this process “re-balancing” the world economy.”

For the full analysis, visit Forbes.

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