China faces a cruel problem. The factors that were the foundation of its economic success will no longer work. What should China do?
China should change its one-child-per-family policy and allow its citizens to choose the number of children they would wish to have. This will allow families to have more children and resolve the low growth rate experienced in the working population. Additionally, all the companies in the urban areas in China should maintain the same range of wages to prevent workers from leaving jobs from one company to another due to just a small raise in their salaries.
Why is China trying to keep the value of its currency from rising? What would be the impact on the Chinese economy, Chinese workers, and Chinese consumers if the Yuan were to rise in value?
China is trying to keep its currency from rising to protect Chinese exporters from the effects of rising currency. If the Yuan rises, the economy of China will go down. This is because taxes will rise and most of the factories will shift their operations from China to other places where they will enjoy low tax rates. Chinese workers will lose jobs as the companies shift their operations to other countries, hence poverty will increase. The cost of goods will also rise because the domestic companies will have shifted. The result is that consumers will rely on expensive imported goods.
If you were a representative of the Vietnamese or Bangladeshi government, would you support the efforts of U.S and European diplomats to pressure China to raise the value of its currency? Why?
Yes, I would support them to pressure China to raise the Yuan value. A rise in the value of the Chinese currency will lead to the relocation of many of China’s companies to Bangladesh and Vietnam where they will enjoy low wage costs. This relocation will be an advantage to these countries since job opportunities will increase. The governments of these countries will also collect more tax from the factories in addition to the fact that more manufactured goods will be available to the citizens. This would mean higher supply lowering the prices of the goods in the market.
Reasons why firms selling to North American customers should relocate their Chinese factories to Mexico
The Mexican labor force is cheaper than the Chinese labor force. This means that if the factories shift to Mexico there will be many advantages. There will be a lower cost of production hence more profits. If labor is cheaper, that means the factories will be able to hire many workers. When workers are many, production will be higher. Higher production rates will lead to the increase in profits. As such, Chinese based companies should consider relocation to Mexico.
Another reason that should make the companies to relocate to Mexico is the geographical position of Mexico. Mexico is to the south of North America. This will make it easy for the transportation of manufactured goods to North America. The cost of transportation will be low and this will lead to the increase in profits. When the cost of transportation is low, not only do factories enjoy the low cost in the final production costs, but they also increase production.
The transport system in Mexico is also good. Such a transportation system will allow easier and faster transportation of goods to consumers. When consumers and other distributors of goods get them in time, they build confidence in the producer. This confidence will boost the trade between the producers in Mexico and the consumers in North America. The increase in trade will bring a positive impact to the companies as profits will rise.