Why do we say that the dollar will eat dirt when it reaches 1?

The main consequences of RMB and USD 1: 1 are the closure of all foreign trade enterprises in China and the paralysis of China's foreign exports, while the main source of income of our economy is foreign trade. So I don't know whether to eat bark or not, and it is certain that the economy will go backwards for decades.

The appreciation of RMB is not conducive to exports. Let's talk about how international trade makes money.

Suppose you start a luggage manufacturing enterprise and earn profits by exporting luggage to the United States.

Your expenses in China mainly include: all kinds of raw materials, machinery and equipment, factory rent, workers' wages, etc. These expenses are paid in RMB. If the annual * * * cost is 1 ten thousand yuan, then 1 ten thousand bags will be produced.

You sell a suitcase to an American, and the other party pays you dollars. Suppose a suitcase costs $20, and 654.38+00,000 bags bring in $200,000.

At present, the exchange rate between US dollar and RMB is 1: 7, so US$ 200,000 can be converted into RMB 6.5438+0.4 million in China, and the annual profit after deducting the cost is RMB 400,000.

When the RMB appreciates sharply and the exchange rate becomes 1: 5, US$ 200,000 can only be converted into 1 10,000 RMB in China, and there is no profit after deducting the cost.

And if the exchange rate of RMB against the US dollar is 1: 1, this 200,000 US dollars will be converted into 200,000 RMB in China, and the luggage enterprises will account for 800,000 RMB.

Facing the appreciation of RMB, luggage enterprises

There are only two ways to make money. First, reduce expenses, but the landlord and employees are unwilling; The second is to increase the price. For example, a bag costs 30 dollars, but Americans don't want it. They will buy $20 bags from other businesses, such as those in Vietnam. Even spend $25 directly on American bags.

This phenomenon will affect all foreign trade enterprises in China, and all foreign trade companies will eventually give up production because the cost is too high or the price is not accepted by others. Therefore, the appreciation of RMB will deal a serious blow to exports. When China rises to 1: 1 and 1: 5, there is no need for foreign trade.

When foreign trade collapses due to the sharp appreciation of RMB, most domestic enterprises will go bankrupt, people will have no jobs and no income, and the economy will continue to decline. Naturally, everyone can only eat bark.

Of course, the theoretical solution is to make up for the loss of foreign trade by increasing domestic demand. So you will see that the government has been promoting the expansion of domestic demand, which is to prevent the sharp drop in external demand from causing China's economic recession. However, at present, China's consumption capacity is obviously not up to that order of magnitude.

On the other hand, without foreign trade, there is no foreign exchange income. All kinds of foreign products we use and food we eat are purchased through foreign exchange. Ordinary people pay merchants in RMB, and merchants buy in dollars from the international market, and dollars are earned through foreign trade. Even if it can be replaced by domestic brands, resource products such as oil and iron ore and some high-end technical commodities cannot be replaced in China, which will lead to material shortage and further economic recession in China.