China's Market Collapse Could Save You Money
The reason comes down to why investors are worried about China in the first place. The central government controls a lot of the banking industry in China, choosing where and when investments happen. But that strategy is prone to mistakes, like overinvestment and choosing the wrong industries to finance. For years there's been worry that China is due for a correction, and last week's events could reveal some signs of where China's problems are rearing their ugly heads. Ironically, the results could actually be good for Americans' pocketbooks.
Here are three ways in which China's economy could impact your wallet, even half a world away.
Driving the World's Energy Prices
The collapse in energy prices over the past year has been blamed primarily on OPEC. But actually, it's worry that China's economy was slowing that sent energy markets into a frenzy.
For a decade now, China has been the driver of global energy growth, particularly in oil. The U.S. and Europe are actually cutting oil consumption, but China's middle class is just getting used to the idea of everyone owning a car. That meant global demand was growing even though the developed world was using less oil.
Even the thought that China's economy could go into a tailspin sent oil prices nearly $10 lower last week. Whether gasoline is cheaper or more expensive the next time you go to the pump, you might have China to thank -- or blame.
Making Everything You Buy Cheaper
You may not buy commodities like iron ore, steel, aluminum, or copper on a daily basis (or ever), but nearly everything you buy is affected by their prices. These are major inputs in construction and raw-material costs for businesses, so when their prices fall, it can make the finished goods you buy less expensive. The good news is that iron ore, aluminum, and copper prices are hitting six-year lows, so input costs for businesses are falling.
Computers, soda cans, televisions, and cars are just a few of the items that use these metals as inputs, and if their costs remain low, it will keep product prices low for consumers. You may not see the savings today, because it takes time for these materials to move through manufacturing, but look for inflation to remain low late this year and into 2016 because of low commodity prices.
The other major use for metals is building construction. If you're building a home or remodeling, the price of copper alone can account for thousands of dollars of input costs, so it may be cheaper to do construction today than it was a year ago. By the same token, with raw-material costs falling and interest rates low, businesses may be more willing to invest in capital expenditures. That should be good for U.S. jobs as well.
For years now, China has been the one bright spot in the economy that miners and commodity manufacturers could point to for increasing demand. If cracks begin to form in that thesis, then prices fall. That's what the market is reacting to right now.
Making International Travel Cheaper
When countries get into economic trouble, one of the main remedies they use is devaluing their currency. A strong currency (like the U.S. has today) means consumers can buy more with each dollar, but a weak currency means exports look cheaper to other countries, which can boost economic growth.
A declining currency can also make it cheaper to travel to foreign countries -- and that's a great side effect if China decides to devalue the yuan, as they've been rumored to be considering.
China still pegs its currency to the U.S. dollar, and with all of the country's growth over the past decade, it was planning to slowly increase the value of the yuan, something it's done slowly since the recession ended. But if China goes into a recession of its own, one remedy could be reversing course and making its currency cheaper.
That would be great news for U.S. travelers, who have already seen the cost of traveling around the world drop in 2015 as the euro is in decline. If China's yuan falls, it would make an expensive trip to Asia just a little cheaper.
China's Downturn Could Save You Money
There are a variety of ways that a slowdown in China could help save you money here in the U.S. So, watch how the economy there reacts after last week's market turmoil. A decline in China might worry global markets, but in the end it could be good for your pocketbook.
Travis Hoium is a Motley Fool contributor. Try any of our Foolish newsletter services free for 30 days. And check out our free report on one great stock to buy for 2015 and beyond.