https://pittythings.com/great-wall-chinese-food/ If you are anything like me when you hear the words “Chinese Yuan revaluation” your eyes instinctual glaze over and you change the channel. However, after a bit of research I think this topic provides a tremendous opportunity for American manufacturers and importers.
First of all, what is the debate all about? Beginning in 1996, China maintained an 8.27 Yuan per US Dollar peg until 2005. At that point, due to pressure from the US, China revalued the Yuan up 2.1%. The Obama administration and others in Congress continue to pressure China to revalue the Yuan upward in order to reduce the trade imbalance between the two countries.
The idea is to drive prices from China up so high that American product prices are not only competitive but attractive thus bolstering the domestic economy. However, more likely consumers will buy from countries other than China but not necessarily the US. Either of which would reduce the trade imbalance with China and improve America’s fiscal and political standing on the world stage.
You might be saying, “This is all very interesting but what does it have to do with Walmart?”
If Walmart were a country it would comprise the sixth largest trading partner with China, according to China Daily, exceeding China’s trade with countries like Germany and Russia. Walmart comprises approximately 10% of all of the US imports from China. Concern is growing that with a weakening dollar and a growing Yuan, prices at Walmart could increase considerably.
Consider what impact the 2005 revaluation of the Yuan had on the US/China trade imbalance. In 2005 the Yuan’s value was increased 2.1%. Since then, the US trade deficit with China has increased 13%, according to the Wall Street Journal, after adjusting for inflation. Many economists believe that another revaluing of the Yuan would simply mean higher prices to American shoppers.
It is conceivable that an increase of the Yuan by 10% or more would eventually have the desired affects on US/China trade, but what happens in the meantime if the Yuan increases another 2%, 4% or 5%? The answer: higher prices.
There could not be a worse time for Walmart to pass along systemic price increases than right now as the economy and the American people battle through the worst economic downturn in decades. The forward-thinking entrepreneur or manufacturer has a great opportunity to offer Walmart’s merchants a solution.
Regardless of the outcome of the revaluation of the Yuan, prices from China will most likely continue to climb as the value of the dollar continues to decrease. This presents the same opportunity for suppliers.
Products that can be produced in the states pose a significant value over and above those produced in other countries. This is due not only to a perceived quality difference, but also to less expensive distribution, reduced out of stocks and the ability to respond to the needs of retailers and their shoppers.
Companies and industries
Many companies and industries are re-realizing the value of US-based services and production. For example, it is no longer financially beneficial to house call centers in India as they are not centrally located. NPR recently reported on the growing trend of aptly named “at home” call center agents working with just their cell phones and computer. There are an estimated 60,000 such call center agents currently employed in the US, and growing. It is this kind of thinking and solution creation that will earn and keep Walmart’s business.
Much of the outsourcing of production from the US began in the 1980s and dramatically increased throughout the ’90s. Consider what production technologies have changed since then. Consider purchasing patterns in the US, in food especially, of buying locally produced goods. Remember the last time that your sales exceeded your forecast? It took 4-6 months to get goods produced and shipped to the US, all the while, the shelves at Walmart were either empty or held your competitor’s products in your place.
Considering all of this and the decline in real income for American families over the last several years, a great opportunity for sales growth and margin enhancement might be found, not on the other side of the world, but right here at home.