China, in an attempt to boost its manufacturing and stock markets, has just devalued their YUAN, (currency), one more time. For those who are not savvy in global exports and macro-economics, let me explain why this is more important to you than the Kardashian’s news about naming their new pet rabbit.
By devaluing a currency a country makes its exports cheaper, and thereby, more affordable to other countries. However, this is akin to a volcanic eruption among the mountains of currencies throughout the world. Because of the Chinese currency devaluation, pressure is placed on other exporting countries the likes of India, Japan, and even what little remaining manufacturing export exists in USA competing with China, to also devalue their currency to be able to continue competing. If all countries fight to have the lowest value currency, at some point in time, those countries and their currencies must reach bottom. The prices of goods imports from those devaluing countries will fall dramatically. We are beginning to witness what economists call, DEFLATION–a period of time when prices of goods DROP in order to sustain manufacturing. During this period of time there is NOTHING MORE that governments can do to stimulate demand for goods. And for companies to compete, they will have to drop their selling prices much more.
At first blush, anyone reading this would say that this is a good thing for consumers when companies drop their prices. Not so fast.
A consumer, for example, you, need money to be able to spend money. Money comes from being paid by companies for a job. Jobs have been drying up for two reasons. Firstly, and most importantly, because of the global demographic shift to older, saving, retirees who need fewer products and smaller homes. Secondly, manufacturers in high-wage countries, eg., America, have shipped their jobs to low-wage countries, eg., China. Companies already reduced their workforces to reduce their operating costs, yet they may need to cut costs a great deal more to compete against cheaper manufactured goods from overseas.
If currencies devalue more, regardless of which country encourages the next round of devaluations, then more workers will lose their jobs and there will be fewer consumers with money to spend on those extremely low-price goods.
This is a bit of a long-winded way to warn you to prepare for another half-year of significant layoffs.
As I have said often in other posts on my website…
- keep your resumes current,
- create a great profile for yourself on LinkedIn,
- be sure your profile photo is professional enough…search for my list of tips,
- add value to your current employer in hopes the best contributors will be the ones who retain jobs.