Monday, October 17, 2011

How Chinese inflation helps US beer tap industry

Because China pegs its exchange rate to the US dollar, it loses control of its money supply because the Chinese central bank has to print yuan to give to exporters who are paid in dollars (and whose costs are incurred in yuan).  Printing yuan results in domestic inflation, which has the effect of appreciating the Chinese yuan (the "real" exchange rate depreciates).  This makes US goods look cheaper, and Chinese goods more expensive.  Carpe Diem tracks the effect.
Manufacturing wages in China continue to increase at 15-20% per year on average, and have actually increased by a whopping 300% for Taphandles since it opened a Chinese factory in 2006. In contrast, manufacturing wages in the U.S. have remained relatively flat, or have even decreased in some industries that have adopted a two-tier wage structure.

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