It is time to ask for a discount from your foreign supplier.
The strength of the dollar and the devaluation of some foreign currencies like the Chinese Yuan over the last couple months have made it harder for US manufactured goods to be exported but it has opened up great opportunities to save money on imported products.
These savings, particularly for Chinese products, are consistent with the 3% Yuan devaluation against the dollar in 2015 and the additional 2% devaluation earlier this year.
Therefore, asking for a 5% discount right now is about right for all products delivered free on board (FOB) to a Chinese port.
The US dollar strength is attributable to many different factors like the slump in the world economy against a US economy that continues to muddle along but grows at 2.4% annually. The US dollar is used in approximately 40-50% of the world’s transactions so a stronger dollar benefits countries by undercutting US export prices on commodities and manufactured goods.
On the other hand, China’s method for economic growth is based on the Yuan being propped up by the government by selling dollars to strengthen it. This is always a dangerous move as reserves are spent quickly. Today the Chinese Yuan represents 3% of the entire world’s transactions.
Compound the exchange rate issues, problems of overcapacity and the falling export industry and you have a perfect opportunity to ask for a discount.