The United States Treasury Department has officially labeled China a currency manipulator, following Chinas’ central back allowing the yuan to drop below 7 yuan per dollar in retaliation to the new tariffs on its imports. The yuan has weakened to its lowest point in more than a decade.
The US move came on Monday 5th August, after the currency fell below 7 yuan per US dollar for the first time since 2008.
Beijing has previously sought to prevent the currency to slip below the symbolic level. However, escalation in the recent trade war, spark by fresh US tariff threats, seems to have prompted a policy shift.
The People’s Bank of China (PBOC) stated that the recent slump in the yuan was a result of “unilateralism and trade protectionism measures and the imposition of tariff increases on China”.
An ex-Trump advisor stated that the recent increase in tariffs has backfired on the US as the currency weakening has come merely days after US President Donald Trump announced that he will impose a 10% tariff on nearly 300 billion dollars’ worth of Chinese goods. Effectively impacting all of the Chinese imports entering the US market.
A weaker yuan means Chinese exports are more competitive, as Chinese produced products become relatively cheaper to purchase for consumers wit foreign currencies. Form the US’s perspective, this weakening in currency is seen as a counter, in an attempt to diminish the impact of higher tariffs. Consumers around the world will be benefiting from this, as Chinese products will be able to be purchased more cheaply with foreign currencies. However, a weaker currency does carry its risks. China may not have foreseen its currency experiencing such a dramatic weakening from this move.
As these two global superpowers continue to battle it out, we can do nothing but watch and hope for the best for the global economy.