Caruso-Cabrera: The Yuan and the Human Factor
Two seemingly unrelated stories today are deeply connected — Treasury Secretary Geithner's testimony on Captial Hill, and a big increase in the salaries of workers at an iPhone manufacturing plant in China.
In prepared testimony today, Secretary Geithner repeated his belief that the Chinese should let their currency strengthen. He points out that by doing so, Chinese workers would have greater "purchasing power parity." Translation: They could afford to buy more stuff. This is a little talked about secondary effect of China keeping the Renmibi depressed. Congress always focuses on another effect—the loss of US manufacturing jobs to China because Chinese workers are so much cheaper.
But while the policy does increase the number of Chinese jobs, it also makes those salaries worth less than they would be otherwise. Now, after 11 suicides among workers a Foxconn plant where they manufacture Apple's iPhone, and a rash of strikes at auto manufacturing plants affecting companies like Honda , wages are going up. For the second time in as many months, Foxconn says they are going to raise wages. Ditto at several auto plants.
There is another way to achieve this. If the Chinese were to let their currency appreciate, it would be a backdoor way to raise wages. Those same salaries would buy more. I realize that there is no way to be sure that the suicides are connected to wages and working conditions. But the strikes most definitely are. In the end, the situation is another reminder of why economic policy matters. It has direct effects on a nation's stability, and the happiness of its people.