Recent events in China could spell trouble for graduating Longhorns

Parth Patel

On Aug. 11, the Chinese central bank devalued the Yuan, sending shocks through the world’s markets. The currency’s exchange rate, which had been strictly controlled up to this point, is now open to market influences. Of course, the important question is why should we care?

In today’s world, economies are increasingly intertwined with one another, especially so in the case of China. The country is well known for its relatively inexpensive exports, including items such as consumer electronics, medical equipment and clothing. As China’s economy has grown rapidly over the past decade, so has its demand for imported goods, such as machinery, electronic equipment and luxury consumer goods. 

However, recently there has been a decrease in demand for Chinese goods worldwide, and its main industry, manufacturing, has slowed considerably. To combat this, the Chinese government issued the recent change. As the value of the Yuan versus the U.S. dollar falls, it becomes cheaper for countries around the world, including the U.S., to import Chinese goods. Increasing demand for these goods will lead to renewed manufacturing growth in China. 

This sounds like a welcome change, but the opposite is also true, and it doesn’t bode well for us; the fact that the Yuan is weakening means that American goods — as well as those from other countries — become more expensive for Chinese buyers to import. Our top exports to China have been goods such as machinery, electronic equipment, copper and the like, and Chinese demand in these areas will fall. In fact, China’s Yuan-denominated imports dropped by a whopping 14.3 percent in August. Decreasing Chinese imports could mean American manufacturers will scale back operations; students majoring in engineering, business and certain sciences looking to enter the manufacturing and technology sectors in the next couple of years could face a tougher job market.

The recent changes in the world economy could be leading to uncertainty in the future and can seem especially daunting to graduating students. The governor of the Chinese Central Bank claimed last week that the Yuan will stabilize, but we will have to see for ourselves how long the slide continues.

Parth Patel is a business honors and finance senior from Austin, Texas.