Floating exchange effect on US

let's think about what might happen in the united states if the dollar is allowed to weaken relative to the dwen so the most obvious thing is that chinese imports will become more expensive chinese imports chinese imports will become more expensive a less obvious a less obvious effect is whether that will reduce the demand for chinese imports or whether that will have any impact on american inflation the reason why that's not as clear is when you go buy when you go buy your cell phone carrying case at your cell phone store and you pay and you pay thirty dollars for it that thirty dollars is not the cost that some chinese manufacturer is getting for it they that that chinese manufacturer is probably charging on the order of 60 cents or maybe 80 cents or a dollar to produce that cell phone case the rest of the money that you're paying is really going to the retailer it's there to order the suppliers or is there to essentially pay for shipping costs from china to the u.s so this 60 cents which was how much it cost to make this in china if this now goes up to if this now goes up to 80 cents or if this goes up to a dollar if this goes up to a dollar it's not clear that this price even has to change or even if it were to change from 30 to 31 dollars it's not clear that that would affect demand much now the the impact that this the weakening of the dollar would have inflate on inflation is the idea that all imports would become more expensive so all all imports potentially and this depends how other countries react to the weakening dollar but all imports could become more expensive and probably the most important import and once again this depends on how these currencies react to some of the oil producing currencies or oil produ oil producers actually peg to the dollar so it might not be as dramatic as you would think but in general if you have a weakening dollar the most important from an american point of view the most important important import of all will probably on the margin become more expensive and that is and that is oil we also potentially will have one less buyer going out there and motivating or at least directly buying or motivating other people to go buy u.s debt so debt might become more expensive so debt could become more expensive in the united states and when i say debt becomes expensive that means that interest rates go up and of course this is hugely this is hugely dependent on what the u.s fed does it could step in it could continue to print more money and essentially keep debt cheap but it doesn't it doesn't look as good optically now the last and probably the most important question and this is to some degree you know once again not a not a clear-cut answer is what happens what happens to us manufacturing the argument has been that that essentially china has been able to produce cheaper than they would have even naturally been able to produce by keeping their currency devalued that's allowed them to essentially steal an industrial base from the united states to deplete the industrial base will this come back will some of this come back from china or other countries and it is true a weaker u.s currency will help the u.s exports but what's less clear is whether uh industries that are are labor defensive labor dependent and require maybe huge amounts of skill whether those are going to come back from asia and my i suspect like i said in the video on china that those are either going to probably stay in asia or if we had to think about where they might move if the chinese currency got stronger i would think that other parts of asia maybe south asia or maybe latin america if they can kind of get there if they could get their act together those are maybe more natural places to go because they have the cheap labor they have lower standards of living right now and what they would need to do to compete with china in particular is essentially have the infrastructure and the systems and the efficiency and the scale in place to compete effectively so these these are probably the people that china has to worry about the most if they devalue their currency not so much the united states although it will help u.s manufacturing on the margin to have a weaker currency this is salman khan of the khan academy for cnbc