Chinese Yuan and the Future of U.S. Exports

Includes: BA, CAT, CNY, CYB, F, UDN, UUP
by: Erik Gholtoghian

In this article I want to briefly discuss the key indicators of US economic growth: Net exports and jobs.

The charts below (click to enlarge images) show that the US is just starting to feel the impact from Chinese yuan strengthening. If you look closely, you can see below that the moving average of Chinese exports to the US has begun to drop while the moving average of US exports to China has begun to rise.

In other words, the trade deficit is shrinking.

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The chart below shows that manufacturing jobs in the US have largely been destroyed from the late 70s until now.

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And the chart below shows why. The Chinese yuan has spent most of the last 30 years weakening or staying weak against the dollar, in an artificially manipulated manner, which has caused most smart companies to move manufacturing operations from the US to China. But you will notice that the yuan has reversed course starting in 2006.

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The US dollar is at a multi-decade low against the major currencies of the world:

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From the charts above, it is my belief that if the US economy stays weak, the yuan will be allowed to rise further against the dollar, and this will finally (eventually) ignite the US economy by stimulating net exports. The dollar is clearly at a multi decade low against other currencies. There are some small signs of new growth in the US already in a few sectors, such as solar manufacturing in the midwest, and commodity exporting from Washington state, but nothing significant has yet materialized. That will change in the next few years.

In conclusion, we can see that the export boom in the US is going to occur, but it will take some time, and we can also see that there are literally millions of jobs that need to be replaced from decades of destruction. Companies which specialize in producing in the US and exporting to other countries may turn out to be the big winners in the next decade. The market seems to think that F, CAT, BA, and most other big US exporters are going to benefit heavily.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.