As Trump Increases Tariffs, China Rolls Out The Currency Weapon

[jpak]

https://www.forbes.com/sites/charleswallace1/2019/05/22/as-trump-increases-tariffs-china-rolls-out-the-currency-weapon/#5fbbec195099

With President Trump’s imposition of higher tariffs on Chinese exports, Beijing appears ready to deploy its currency weapon again.

The Chinese renminbi fell to 6.9342 to the U.S. dollar on Wednesday, a fall of 8.77% this year alone. With U.S. tariffs at 10% on $200 billion in Chinese imports, the falling currency almost wipes out the effect of the price increase on Chinese exporters. Trump raised the tariff to 25% last week.

As the renminbi gets close to the psychologically important 7.0 to the U.S. dollar mark, the question is whether or not Chinese authorities will allow the currency to depreciate that far. While such a decline helps exporters, it could trigger currency outflows from China as businesses seek to stabilize their assets.

Reuters last week reported that three sources close to Chinese foreign exchange decision-makers said Beijing would not allow the currency to breach the 7 to the dollar level.

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