Will The Price of Power Tools Be Impacted by Chinese Fiscal Policy?
First things first, we need to understand that the majority of our power tools are made in China.
Many products that claim to be made in the U.
S.
A are simply assembled here using imported parts.
The qualities of these power tools are very similar as many of the parts are coming from the same factories in China.
The price variations are a result of brand names marking up their products to portray the old adage "if it's more expensive, it must be a better product.
"Those who have caught on are now buying discount tools with comparable quality at much lower prices.
Now that we know that the overwhelming majority of power tools are produced in China, most of the raw materials and labor costs to produce these items are denominated in Chinese currency, formally known as the Chinese Yuan.
For some time, the Yuan has been pegged to the US Dollar, which keeps it lower than its free market rate.
Economists have argued for years that China is keeping its currency artificially low, making its exports cheaper and more aggressive against foreign competitors.
Recently, economists have argued the Yuan is undervalued by as much as 30%.
Let's take this example: Johnny wants to buy one widget from Lin, his current supplier in China.
The current exchange rate is 1 USD = 6.
60 Chinese Yuan.
The cost for one widget is currently 6.
60 Chinese Yuan.
If the CNY appreciates by 30%, the rate will become 1 USD = 4.
62 Chinese Yuan.
This means Johnny's dollar has less purchasing power than before and Johnny will need to come up with an extra $.
30 to pay for his widget.
If you are following this article, you are probably asking yourself this question:"If the Yuan is truly undervalued by 30%, when it begins to float freely at a natural market rate will we see the impact directly on our power tools?"The answer to this question is yes, but the impact will more than likely be incremental.
If China does allow the Yuan to float freely, it will be done gradually.
Power tools won't be the only item impacted with the change.
Many of our consumer goods are made in China and a 30% increase in all of our goods at one time would be devastating to consumers and producers alike.
Many experts anticipate the change will happen gradually.
In any case, the free floating of the Yuan seems inevitable.
The trickledown effect will ultimately be passed on to the consumer.
On that note, I think I will begin stockpiling power tools, just in case of course.
Many products that claim to be made in the U.
S.
A are simply assembled here using imported parts.
The qualities of these power tools are very similar as many of the parts are coming from the same factories in China.
The price variations are a result of brand names marking up their products to portray the old adage "if it's more expensive, it must be a better product.
"Those who have caught on are now buying discount tools with comparable quality at much lower prices.
Now that we know that the overwhelming majority of power tools are produced in China, most of the raw materials and labor costs to produce these items are denominated in Chinese currency, formally known as the Chinese Yuan.
For some time, the Yuan has been pegged to the US Dollar, which keeps it lower than its free market rate.
Economists have argued for years that China is keeping its currency artificially low, making its exports cheaper and more aggressive against foreign competitors.
Recently, economists have argued the Yuan is undervalued by as much as 30%.
Let's take this example: Johnny wants to buy one widget from Lin, his current supplier in China.
The current exchange rate is 1 USD = 6.
60 Chinese Yuan.
The cost for one widget is currently 6.
60 Chinese Yuan.
If the CNY appreciates by 30%, the rate will become 1 USD = 4.
62 Chinese Yuan.
This means Johnny's dollar has less purchasing power than before and Johnny will need to come up with an extra $.
30 to pay for his widget.
If you are following this article, you are probably asking yourself this question:"If the Yuan is truly undervalued by 30%, when it begins to float freely at a natural market rate will we see the impact directly on our power tools?"The answer to this question is yes, but the impact will more than likely be incremental.
If China does allow the Yuan to float freely, it will be done gradually.
Power tools won't be the only item impacted with the change.
Many of our consumer goods are made in China and a 30% increase in all of our goods at one time would be devastating to consumers and producers alike.
Many experts anticipate the change will happen gradually.
In any case, the free floating of the Yuan seems inevitable.
The trickledown effect will ultimately be passed on to the consumer.
On that note, I think I will begin stockpiling power tools, just in case of course.
Source...