The Pros and Cons of the China Price: The Ticker

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By Mark Whitehouse

Wal-Mart Stores, which managed to produce yet another quarter of better-than-expected earnings today, faces a strengthening headwind: The China price keeps rising.

In July, the average cost of U.S. imports from China, where Wal-Mart and many other U.S. retailers source a large share of their products, was up 0.4 percent from June and up 3.5 percent from a year earlier, according to the Labor Department. That might not seem like a lot, but it's a big change from July 2009, when the China price was down more than 3 percent from a year earlier.

The trend reflects a deeper transformation occurring in China. As the country gradually runs out of available factory labor and provincial governments try to manage a urban workforces, minimum wages are rising in some places at rates of more than 20 percent a year. In other words, the average Chinese worker's living standard is converging more toward that of the average Western worker than vice versa.

What's better for Chinese workers should also be better for U.S. workers -- and for traditional offshoring areas such as Mexico. As China's price advantage wanes, making things in or near the U.S. becomes more viable, particularly for products with high transportation costs and in businesses -- such as high-end electronics -- where being close to the consumer can provide an edge. Wealthier Chinese consumers might also buy more of what the U.S. produces, easing the imbalances in trade and capital flows that played a major role in the most recent financial crisis.

That next computer or pair of shoes might cost a bit more. But it might be worth it.

(Mark Whitehouse is a member of the Bloomberg View editorial board)

-0- Aug/16/2011 19:54 GMT