After decades as America's go-to destination for low-cost consumer goods, China is undergoing a profound shift. Rapid economic development and a smaller supply of young migrant workers are pushing up labor costs. Tack on rising raw-materials prices, driven largely by Chinese demand, and a strengthening currency, and China-made goods aren't the bargains they used to be.As I've discussed a lot here, import taxes on basic necessities like food, clothing and footwear disproportionately affect low-income Americans who must spend a larger share of their paychecks to afford the everyday things that they need. For example, if Single Mother Mary makes $500/week, that additional $40 for a sleeping bag could (would?) prevent her from buying it for her son, Lil' Timmy. Meanwhile, that price increase might have little effect on Rich Lawyer Larry. So when we impose taxes on Chinese (or other countries') imports, or demand that they otherwise increase the prices of their goods and services, guess who hurts more? Yep, Mary (and Lil' Timmy).
In the past year, labor costs have risen 15% to 20% at Michaels Stores Inc.'s Chinese suppliers, says John Menzer, chief executive of the arts-and-crafts retailer. He says his company has spent much of the year seeking ways to partly offset those increases, such as by grouping goods from different suppliers into a single container to cut shipping costs.
Still, Michaels has had to raise prices this year on some items, including artificial Christmas trees. And Mr. Menzer expects its battles with rising Chinese costs to continue. "Our suppliers are very nervous about labor costs," he says. "We'll have the same pressures next year."
Last month's prices for Chinese imports were up 3.9% from a year earlier, the Labor Department said Wednesday, matching October's gain, the largest year-to-year monthly rise since 2008.
Wednesday's report showed that prices were up sharply for many kinds of goods for which China is the dominant supplier.
China accounts for about 80% of U.S. shoe imports; imported-footwear prices in November were up 6.1% from a year earlier. It accounts for about 60% of furniture imports; imported-furniture prices also were up 6.1%. About 80% of U.S. luggage imports come from China; prices in the category that includes luggage and similar goods rose 8.3% in November.
Those higher costs are one reason that U.S consumer prices have risen this year, despite the weak economy. Economists expect Friday's inflation report from the Labor Department to show that, excluding the volatile food and energy categories, November consumer prices were up 2.1% from a year earlier, on par with October's rise....
Rising wages in China aren't new, says Bank of America-Merrill Lynch economist Ethan Harris. Pay there has been going up for years. What's different now, he says, is that labor costs have reached a point where Chinese exporters can no longer easily absorb them, and are instead passing them on. That's particularly true for labor-intensive items like shoes. In a note to clients early this year, Mr. Harris estimated that labor accounts for roughly half the export cost of a Chinese-made sneaker.
"I think it put them up against their profit wall, and then the pass through started to get quick," he says.
That was Big Agnes Inc.'s experience, says Bill Gamber, co-owner of the Steamboat Springs, Colo., camping-gear company. "Our suppliers were doing well for a long time, and absorbed the cost, and all of a sudden they're like, 'we can't do this anymore,' " he says.
The company has figured out ways to hold some costs down. It found a cheaper fabric for its tents, for example. But it still is raising prices. A popular sleeping bag that Big Agnes has priced for years at $199 will be $239 when the 2012 version is rolled out next month....
So congrats, currency hawks. Looks like you're finally getting what you really want: higher prices for, and regressive taxes on, US consumers.