Why renminbi fall is the latest salvo in the US-China trade war

Why renminbi fall is the latest salvo in the US-China trade war


Seven renminbi to the
dollar was regarded as a line in the sand for
the Chinese central bank. But on Monday, the Chinese
currency finally broke through its widely recognised
line of defence – the first time it’s done so
since the global financial crisis. But it was a level that
was becoming harder to justify from
China’s perspective after Donald Trump’s threat
of more tariffs on Thursday last week. That threat led to
a drop of nearly 1 per cent in the
renminbi on Friday, as well as the sell-off
in global equities as investors took fright. China’s commerce ministry
vowed to retaliate. And while the People’s Bank
of China blamed the fall in the renminbi on trade
protectionism and tariffs, letting its currency fall to
more than seven to the dollar could be seen as
part of its defence. Propping up China’s currency
can be an expensive business. When China tried to defend
the currency in 2016, it ended up burning
through a large chunk of its foreign
currency reserves, spending as much as
$100bn in a single month. That was after a
renminbi devaluation in 2015 that may have provided a
short-term boost to the economy but led to significant
capital outflows and drew the ire of
critics in Washington who accused China of
currency manipulation. But on Monday,
China’s central bank tried to calm fears of
runaway depreciation, claiming it has the
experience, confidence, and capacity to keep the
exchange rate fundamentally stable. However, the unpredictability
of the Trump White House makes the next step in the
trade war extremely difficult to predict.

13 thoughts on “Why renminbi fall is the latest salvo in the US-China trade war

  1. Devaluation of the currency can make exports cheaper and imports more expensive, which can cause higher economic growth, but a devaluation will exacerbate inflation and costs may increase over time. One of the best and well known consequence is Venezuela's Bolivar devaluation. The bolivar set to go from about 285,000 per dollar to 6 million. Venezuela's 'desperate' currency devaluation has destroyed its economy. Similarly, What China is doing proved that China faced economic difficulties.

  2. Currently tariffs are starving Chinese manufacturers, the devaluation of their currency may be just what they need to be seen as competitive again,

  3. Stop calling it a U.S. China trade War, it is a Trump trade klusterfuk and idiots who surround him trade War, he doesn't represent the people and has no clue about anything this f**** idiot is destroying us and the rest of the world

  4. Trump's right, tariff's will win! Capitol investment will leave China.
    China needs the U.S. market, while the U.S. doesn't need China's market.

  5. Gosh, there ought to be some means by which countries can balance currencies and trade. Like, a commodity we all agree upon or basket of them, and a counter-balancing exchange, and an agreement against mercantilist malpractices. Hmmm. Blame President Trump for disrupting this perfect system we've had since the Plaza Accords! Euro dollar speculation from the City of London and HSBC couldn't have financialized the West and led to this mess, no, never, it's too hush-hush to be discussed; no visible effect; labor arbitrage with luxury garbage and land whoring in the West / the garbage-goods and land polluting of the East is 'globalization' and cosmopolitan, and you're a sexist deplorable peasant – or what's that expression they love across the pond – "SCUM" – if you don't snigger as the public school boys do, cozy in your insider delusions. Grand papa wouldn't recognize you, you fart-sniffers have no idea what hell is about to descend upon us all. Yet it's better than a slow decay into absolute degenerate wormhood… The End of History and The Last Man, not so fast. "Blest paper credit, last and best resort."

  6. UK owes HK everything and must help HK for the serious violation committed by china criminal party of the Sino British Joint Declaration that is registered under UN and human rights in HK!

  7. Here's what I think.

    I think a decision should be based on what's better for the innocent people around the word and not limited to only benefiting one nation.

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