China lets the value of their currency fall against the dollar and the Euro. Chinese exports will increase.
After a Chinese central bank devaluation of the Chinese currency on Tuesday, a drop in the currency’s value was followed by a second day fall off of another one percent against the dollar on Wednesday. This latest decrease was on top of a fall in the Chinese currency by 1.8 percent against the dollar and 2.2 percent against the euro immediately following the devaluation the day before.
Tuesday’s devaluation of Chinese currency, the renminbi, sometimes referred to as the yuan is the biggest devaluation by China since 1994. The move will make Chinese goods cheaper for Americans and harder for American businesses to sell to China. The pressure on American job growth will increase. The Chinese devaluation appears to be a reaction to a drop in Chinese exports, which fell eight percent in July, and to a drop in Chinese growth rates, which have fallen from double digits to the single digit realm. The Chinese leaders obviously hope this fall in the Chinese currency’s value will help to turn that decrease in growth rates around.
Is this the start of a trade war with the United States? The chief economist of the People’s Bank of China, the Chinese central bank, sought to downplay that possibility, saying that Tuesday’s devaluation was a onetime correction. The South China Morning Post headline on Wednesday was “No downward spiral for yuan: China’s central bank tries to play down fears of depreciation, currency war.”
Businessman Donald Trump, candidate for the Republican nominee for president has been outspoken for a tough stance against China. He said on Tuesday that the Chinese devaluation will be devastating. In an interview, Trump says “They are destroying us.” Adding, “They keep devaluing their currency until they get it right.”
But some analysts disagree. The International Monetary Fund, as reported by CNN, says the Chinese currency is fairly valued and CNN reports many analysts see the latest move as China following a commitment to allow the market to more fully influence the value of its currency. But others disagree with this view. Kevin Drum, Political blogger for motherjones.com says, “China will intervene to do whatever it takes to help their economy. If that means letting the market have its way, well and good. If not, then they’ll pay no attention to the market.”
Thus far, there has been no readily available response from other presidential nominee candidates to the Chinese devaluation, though candidate for the Republican nominee Carly Fiorina, former Hewlett- Packard executive, said on Wednesday, the day after the Chinese devaluation, “I would be conducting, actually now, at a moment when China’s economy is wavering a bit, I would be conducting more flyovers on the South China Sea. We cannot permit China to control a trade route through which passes $5 trillion worth of goods and services every year.”