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Exchange rates obviously can be a critical issue in international business, both negative and positive, but I do think that the real impact of the undervaluation of the yuan is largely academic at this point.
I don’t agree that the problem is an inability on the part of American companies to produce quality goods. My own experience is that in most industries, American-made products are very competitive on quality with goods produced elsewhere — and in the case of competition with Chinese production, I would argue that in general American manufactured products are at least of more consistent quality than those from China. Indeed, in most industries in which I’ve had experience, I would say that the Chinese themselves recognize “American-made” as a mark of quality.
The question is the “reasonable price” part of the equation. What is “reasonable” is relative. The leaders of the American labor movement would argue that goods need to be priced at a level to underwrite fully funded company health coverage and retirement benefits. And they would further argue that it’s the low prices allowed by a very different economic and labor environment in China that are “unreasonable”. A consumer weighing the relative tradeoffs of competing goods might well view the reasonableness of a price very differently. All of this suggests that, not surprisingly, the real question is not whether the price is “reasonable” but whether it is “competitive.”
All of which brings me to my bottom line on exchange rates between the dollar and the yuan. From the analyses I’ve read, it appears that the yuan may be undervalued by about 30%. Given the much greater wage cost disparities between China and the U.S. driven in part by very different supply and demand curves for labor,I don’t believe that an adjustment in the currency valuation to the suggested levels would be sufficient to significantly alter the competitive price advantage enjoyed by Chinese exports in those markets where price is a driver of customer preference.