Impact of Chinese Wages

Impact of Chinese Wages

Impact of Chinese Wages
What might the likely effect be for the world economy, and particularly the United States economy, if prices of all goods from China increased? How might this affect our disposable income?
Over the past few years, China has seen a major growth of its economy. Looser government regulatory controls, combined with increased education, skill, and productivity has caused China to become a hotbed of economic activity. However, Chinese citizens have also been plagued by ballooning housing and food costs, causing workers to demand higher wages. (Lardy, 2012)
Known as “the world’s factory,” China is the largest manufacturing power on earth, and accounts for a fifth of all global manufacturing (The Economist, 2012). Wages have risen by 10-30% (depending on the area) over the past four years. This increases the costs of goods, which is eventually passed on to consumers.
What does this mean for American consumers? Like many things in economics, the consequences are a mixed. In the short-term, prices on products manufactured in China will go up. Items such as toys, electronics, and household appliances may be hit hardest, followed by other labor-intensive goods such as clothing (many clothing manufacturers have already begun moving their factories to areas with lower labor costs, so the impact is less here) (The Economist, 2012). This means American’s won’t be able to purchase as much for their money as years prior, which will have a negative effect on many U.S. retailers who depend on consumer’s disposable income during the holiday seasons for a large percentage of their overall profits. Overall, higher costs of goods from China will have a negative impact on the U.S. economy in the short-term.
In the long-term, however, if Chinese wages/costs continue to rise, then it could be a good thing for the U.S., China, and the rest of the world. According to Loerge Wuttke, a veteran industrialst with the EU...