Q1
China is one of the largest trading partners for the United States and a weak dollar or strong Yuan will has impact. A strong Yuan means that exports from China will be expensive and effectively, US consumers won’t buy from China. However, when the Chinese devalue their currency, customers in the United States will benefit from low prices on imports from China. Furthermore, US tourists visiting China benefit from lower prices (Kaiser, 2011). The disadvantages with a strong dollar include US exporters having difficult time competing with Chinese goods. Secondly, US companies have a difficult time competing with low-cost Chinese imports into the US economy. However, a weak dollar than Yuan benefits US exporters since they can compete with the low-cost Chinese imports, and Chinese tourists and students benefit from low prices when they visit or come to study in the United States (Kaiser, 2011). Conversely, the impacts of expensive imports contribute to high inflation and price levels in the United States. The value of the Yuan needs to be competitive such that the US and Chinese suppliers can compete fairly.
Q2
I would say that while it may be politically convenient to blame the Chinese government for currency manipulation, the impact of devaluing one’s currency exists in every economy in the world so that governments keep their exporter can benefit from a lower currency in international business. Effectively, it is a legal right for every nation to establish policies that protect its international trade interests. For instance, the US enjoys the largest debt in the world and has zero-rated interest rates to make its exports cheaper in the international market. Japan has also lowered its currency so that exports are affordable at the international market. The benefit of the currency manipulation by the Chinese is not a unique situation since many economies are setting fiscal and monetary policies that are friendly to their electorates and enabling them to trade by making their exports cheaper (Galantucci, 2015). As Wal-Mart, it will mean that a strong Yuan will have a profound impact on our customers because most of our products are manufactured overseas, especially in China. An appreciated Yuan will mean that exports will be more costly and the consumers will feel the appreciation in their wallets. The pursuit of such a policy to force China to stop currency manipulation will result in higher costs for American consumers. Therefore, Wal-Mart will have to increase prices so as to meet costs of the stronger Yuan to keep profits up for the shareholders. Eliminating China’s currency manipulation cannot result in the elimination of the trade deficit between China and the United States (Galantucci, 2015). Additionally, it won’t restore full employment in the US. Furthermore, it would mean that Wal-Mart lays off some employees, pay more for imports from China, and get new production and supply- sources for its products, particularly clothes and toys.
Q3
The appreciation of the Yuan may have a devastating impact on Wal-Mart. The retailer has more than five thousand non-Chinese suppliers in China who directly benefit from a weaker Yuan as compared to the dollar. The effect of this situation is that the suppliers keep the prices low and competitive at the international market because of the devalued Chinese Currency. Wal-Mart customers across the world benefit from the weak Yuan (Makinen & Masunaga, 2015). The organization’s primary supply market, with almost seventy percent of its products is China. Therefore, an appreciated Yuan will hurt the company’s financial position because it will affect its customer’s purchasing power due to increased cost of products. The devalued currency is fundamental to the operations and profit margins of the organization. Wal-Mart may be forced to have a raft of measures to remain competitive at the international level. It may be obliged to reduce its workforce because of increased costs of operations and the need for profits to the shareholders. Secondly, it should pursue the Congress to allow China to manage its monetary policies without any interference because the involvement by the Congress is tantamount to job cuts, massive drop in spending, and overall economic downturn for the American economy that is increasingly depending on imports from Asia, particularly China (Makinen & Masunaga, 2015). Thirdly, the organization should seek alternative source and manufacturing markets to guarantee its consumers low prices and keep the cost of operations low and profits high. For instance, the cost of the Chinese labor market is low compared to other economies. The change of strategy is necessary if the Yuan continues to appreciate, especially if the Congress will enact a policy to regulate the value of the currency and other trade measures.
Q4
A strong dollar is better on the international market when one is exporting to foreign countries. As an exporter from Argentina, I would accept payment in dollar as opposed to the Yuan. Yuan is only good when shipping from China because it a devalued Yuan ensures that the cost of production is low and the returns high because the product is competitive at the international market. However, a dollar is highly competitive, stable and accepted across different markets as opposed to the Chinese Yuan. Therefore, wherever market I am from when selling in China, I would accept payment in dollar as opposed to the Yuan. Finally, the manipulation of the Chinese currency is good for international exporter from China and not those selling there.
References
Galantucci, R. A. (2015). The Repercussions of Realignment: United States–China
Interdependence and Exchange Rate Politics. International Studies Quarterly, 59(3), 423-435.
Kaiser, E. (2011). How A Rising Chinese Yuan Will Affect The U.S. Economy. Reuters
Thomas. Accessed on 25th April 2016 from http://www.huffingtonpost.com/2011/10/05/how-a-rising-chinese-yuan-affect-us-economy_n_995747.html
Makinen, J. and Masunaga, S. (August, 2015). Why China's devaluation of the Yuan matters so
much. Los Angeles Times, business. Accessed on 25th April 2016 from http://www.latimes.com/business/la-fi-china-devalues-yuan-20150811-htmlstory.html
