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China Reacts With Devaluation On Trump's Tariffs

Created by Frank Diebel | |   Economy

Donald Trump's aim to make Chinese imports in the US more expensive was answered by a devaluation of the yuan. It is characterized by the fact that the trade dispute is growing into a currency conflict between the two countries. For the first time since the financial crisis of 2008, the Chinese yuan again breaks the magic mark of 7 yuan for every dollar.

So far, the People's Republic of China has been very reluctant to react to Trump's tariffs by devaluing its currency. In the meantime, however, the realization that more flexibility on the currency side is necessary in order to cushion the consequences of US trade policy is likely to take hold in Beijing. As this reduces the prices of Chinese imports to the US market, Donald Trump's punitive tariffs against China are now fizzling out. It is still unclear whether this is an administratively induced devaluation. However, there is much that speaks in favor of it. In any case, the new development of the exchange rate is a double-edged sword for both the People's Republic and the United States. Although China's exports to the dollar area will be cheaper, imports will be more expensive. In addition, as a result of the devaluation of the yuan, the dollar-denominated currency reserves of China are rising again. China and the USA thus continue to be inextricably interlinked and dependent on one another in terms of trade and monetary policy.

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Trade Dispute Between USA and China
Trade Dispute Between USA and China (Image Source: Shutterstock)