The devaluation of China's yuan currency that led to a plunging stock market could bring mixed results to manufacturers in the suburbs and elsewhere, experts said Monday.
Manufacturers of components who buy raw materials in China could save money for themselves and their clients. But manufacturing in China has become more expensive, and large companies like Caterpillar could find it more difficult to export their finished products to China because it will cost the Chinese more to buy them, experts said.
"Currency manipulation can be very serious because it potentially allows for the flow of artificially cheap products into the world market," said Mark Denzler, spokesman for Oak Brook-based Illinois Manufacturers' Association. "It can put (increased) pressure on the U.S. dollar, making it more difficult for Illinois and American manufacturing companies to export their goods across the globe."
Illinois companies last year exported more than $68 billion worth of products, but that has slowed this year as the U.S. dollar became stronger, according to the association.
Numerous suburban companies have import or export relationships in China or have operations there, including Elgin-based Wanxiang America Corp., Schaumburg-based Motorola Solutions, Bloomingdale-based Bi Link, Lisle-based Molex Inc. and Navistar International Corp.
The Chinese currency devaluation is part of a strategy of promoting China exports. The exports have become more important in its economy and now account for about 30 percent of its gross domestic product. But the Chinese economy began slowing down and exports in July fell 8.3 percent, said Hongxia "Mary" Ma, director of the Illinois International Trade Center at Governor's State University.
China's slowing economy and the currency devaluation will have a complex impact on U.S. manufacturers. For example, U.S.-made products will have a higher price than the local Chinese suppliers there, affecting competitiveness of U.S. products in China, Ma said.
Yet, U.S. manufacturers are going into this latest financial crisis with more optimism than in previous years, said Karen Kurek, a partner who specializes in the manufacturing sector at McGladrey, a consulting and tax firm based in Chicago and Schaumburg.
"Sure, if the markets come down, it can affect their business," Kurek said. "But they're entering this at a time when unemployment is down, housing starts are up and mortgages are low."
"What's happening today, well, you should just take a deep breath, at least from a manufacturing perspective. The stock market is going to go up and down, but for the middle manufacturers, this will not be changed today," she said.
Local manufacturers that purchase raw materials from China could benefit.
"The U.S. dollar is stronger, so when we buy in China, we have an advantage," Kurek said. The finished U.S. products then can be sold to markets within the United States and to other countries without concern about the Chinese currency problems, she said.
While many U.S. companies were flocking to China a few years ago because it was less expensive to manufacture there, the tables have turned. China lost that cost advantage a few years ago, said Diane Swonk, senior managing director and chief economist for Mesirow Financial in Chicago.
"It is now more expensive to produce in China than Mexico," Swonk said.
Because the U.S. economy is now on firm ground, local manufacturers shouldn't worry, said David Klein, senior vice president/financial adviser for the The Auctus Group-RBC Wealth Management in Buffalo Grove.
"The Chinese currency has been appreciating for several years before this devaluation and after rising for several years, this should not have a dramatic affect on manufacturing," Klein said.
"Anything the Chinese buys externally will cost them more and the question now is how things will stabilize," he said.
When St. Charles-based Bison Gear & Engineering needs components for a motor to serve clients in transportation, medicine and other industries, it buys from several countries, including China.
"We operate a very lean system. We just buy what we need," said Swarbrick. "So this won't mean we'll buy more."