Tuesday, September 18, 2012

Falling Wages In US Are Not China's Fault

Both political parties are engaged in China bashing as the election heads into the home stretch.  They blame currency manipulation by China as the explanation for our trade imbalance and for falling wages in the US.  Wage inflation in China, and the cost of over extended supply chains, has been reducing much of the cost advantage that China has enjoyed.  Wages in the US are falling, in large part, because of the financial crisis.  Banks are holding huge reserves, instead of lending, because they are still holding assets that they have not written down.  Money is available for large corporations who do not need funding, but credit for small businesses who need cash, is more difficult to obtain.  In any case, wage deflation in the US, is not entirely due to the wage differential between the US and China. 

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