Will the Chinese Devaluation Mean Good News or Bad for Connecticut Companies? | Connecticut Public Radio

Will the Chinese Devaluation Mean Good News or Bad for Connecticut Companies?

Aug 14, 2015

Connecticut manufacturers are closely watching events in China as the country allows its currency to devalue. Government control of the yuan has for years been a point of contention for companies, who said it gives Chinese manufacturers an unfair advantage in export markets.

Jerry Clupper is Executive Director of the New Haven Manufacturers Association. "The artificial setting of the currency rate has allowed China to keep their costs, compared to the United States dollar, artificially low," he said. "It's meant that materials coming in from China were at an advantage in the marketplace in terms of costs, compared to what we could do in this country."

In the short term, it's possible a devaluation may be bad news for the current reshoring movement, which has been moving manufacturing back to the US from China. But for Frank Johnson, the manufacturing policy advisor to the Employers Association of New England, the effects are difficult to predict. "A good amount of the commodity type work, like screws or nuts or rivets, has already been lost to China. The currency issue is a bit different, in that essentially what China did is they decreased the cost of the products they sell back to the United States." That means, he said, the effect depends on your business. "If you're a manufacturer who buys commodity from China it would be actually beneficial to you. If you are competing with the Chinese, then it definitely would be an inhibitor."

Johnson said the greater concern immediately is whether this touches off a currency war, as other countries devalue in order to compete. But if the devaluation indicates that eventually the yuan may actually allowed to float and find its natural value, there could be more positive results in the long term.

"For the smaller manufacturer, the markets that we have are primarily European and Canadian," said Jerry Clupper. "But certainly the primes that we are suppliers to, have a Chinese presence in many cases. And so how the Chinese changes in the currency affect the primes will be of great interest to our smaller manufacturers."

China has seen a trend toward rising wages in recent years, and some watchers believe the devaluation could be an attempt to balance out the effect of that inflation on Chinese exporters, restoring some of their cost advantage in international markets.

Frank Johnson said for him, the whole sequence of events illustrates how important it is for exporters that the U.S. take strong action on currency manipulation, especially when it enters into trade agreements.