After a great Christmas party for city employees on Monday night, I rushed home for a few hours of sleep before catching a 6 a.m. flight out of NW Arkansas Tuesday morning for a few days of work in Shanghai.
As we flew from Chicago to Shanghai, winds aloft took us on a rather uncommon route. Instead of heading north and then west over northern Alaska and down over eastern Russia, we went north and east, north of Greenland, north of Europe and down through the middle of Russia. Given that the flight home will head east-south of Alaska and crossing into the US around Washington/Oregon, this trip should be my first true trip "around" the world…albeit most of it was all done above the Arctic Circle.
As I drove from Shanghai to our factory base to the south, I figured this "circumnavigation" would be the highlight of my trip. After all, what could top doing what was first done by Magellan five hundred years ago? (For those not big on history, Magellan actually died during the trip to circumnavigate the globe. Another captain took over and only one of the five ships that started the voyage actually came home. It took three years.)
The real memorable event of the trip was to happen at our first factory stop. That's when I heard from our factory that they expected the RMB (the Chinese equivalent of the US dollar) to hit an all-time high of 5.5 in the next 12 months.
That means that for every US dollar I spend on our products made in China, it will buy 5.5 RMB worth of goods. Compare that to rates of 6.8 from 2008-2010 and even rates in the 7.5 range just five years ago. What does all this mean?
It means that goods made in China will continue to cost Americans more in the coming months. It also means that US goods sold abroad to China, like Boeing airplanes and grain, will be more competitive and should help cut our trade deficit with China. (See, it's not ALL bad!)
As the cost of goods from China increase due to the exchange rates, a few things happen. One – we'll see continued inflationary pressures here at home. That's because roughly 20 percent of what we import comes from China. You'll also see goods that were previously made in China with low-skilled labor move elsewhere. Countries like Vietnam and Bangladesh will continue to see more work move their direction. (Take a look at your tennis shoes – there is a good chance your newer ones were made in Vietnam vs. China.) That's part of being in a global economy.
For me, it's a mixed bag. For years, I've been working to find more items I can make in Neosho to keep jobs domestic.
Page 2 of 2 - Given that Chinese import competition will have higher costs as well, these rates will help keep my manufacturing business somewhat competitive. But it also means that items I buy from China will cost more and those higher costs translate either to higher prices or lower profits – neither of which is easy to swallow. For now, I'll keep moving forward and working to find some common ground. I've got a number of ideas on the horizon that will add more jobs in Neosho (all done without gov't subsidies or political favors) and bring more work back to North America. While global trade is good, I prefer to make as much as I can here in Neosho…even if that means I make a little less money in the process.
I had a great time at the city Christmas party Monday night. To those who attended, I hope you enjoyed it as well. We're very lucky to have such great people working for our city. To Sgt. Kennedy – I hope the Taser training goes well.
So long for now from Shanghai! Until next time – stay the course, keep the faith, and may God bless Neosho!
Richard Davidson is mayor of Neosho.