China's Currency Case Study the Research Proposal

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The U.S. trade deficit and downward pressure on wages in many industries is more a factor of the Chinese manufacturing sector being more aggressive in lean manufacturing and efficiency practices (Taj, 2008) than any other factor. To demonize China is to miss the point of what it means to be in a market-driven global economy. Only after nearly going bankrupt and needing huge federal assistance programs are American automakers finally building small cars. Like a drug they were addicted to, American auto manufacturers could forever build larger cars and trucks, even originating Sport utility Vehicles (SUVs) as a category, and never pay attention to fuel economy or cost of ownership. With GM nearly bankrupt it looks as if their SUV addiction is finally being broken. But it took a full-scale intervention, the magnitude the U.S. has not seen since the Great Depression, to wake these companies up and make them market-driven. Is China to blame because GM refused to pay attention to the need to be more environmentally focused in their product designs? No. The free fall of American wages in the auto industry rest squarely in the ands of the CEOs of those companies who completely missed market signals telling them to change. Second, on the issue of apparel and electronics manufacturers in the U.S. being driven to cut prices by Wal-Mart and leading in turn to that retailer being demonized are also inaccurate. Wal-mart is not a government administration, it is not part of a bail-out program. It is a business that must stay profitable for well over 100,000 people to keep their jobs. They are a profit-making entity.

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Suppliers who hope to sell through Wal-mart realize they are the low-price leader. This is not news to anyone who lives in the U.S., where their ads on television continually. Manufacturers and suppliers who choose to sell to Wal-mart have got to expect price pressure. It is a choice they make. Wal-Mart can find lower prices to source their products in China, and that is their choice. To become protectionist over these dynamics is to perpetuate the mindset of the CEOs of American automakers who nearly cratered that industry in the U.S. yet to see this as a call to be more competitive on a global scale is to get the point. The U.S. has to quite being such a nanny to these corporations who refuse to see that they must change -- sometimes radically -- to survive.

3. Do you think an aggressive legislative posture with respect to China's currency is the best approach for a trade partner to take?

No, because it would immediately spark a trade war and prices would skyrocket. This would be a huge mistake, immediately impacting supply chains for apparel products, electronics, textiles and many other items. The supply chain enabling companies including logistics companies, freight forwarders and others would be immediately hit with the slow down in business. Some would have to exit their businesses. Taken to an extreme protectionism would cause hundreds of businesses to go bankrupt because it slows down trade they all rely on to survive. Protectionism is a cheap substitute for real market performance. Legislating equality of trading globally is a huge mistake......

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