With new tariffs, U.S. President Trump wants to make Chinese products more expensive. However, by exchange rate Beijing makes him a tract by the bill. China’s currency fell to its lowest level for more than ten years.
On Monday, a US Dollar was worth 7,04 Yuan. It was the first Time since 2008 that the US currency was more than 7.00 Yuan value. On Wednesday, a day before the announcement of new tariffs by U.S. President Donald Trump, got it for a Dollar only 6,88 Yuan.
Within a few day the Yuan has lost more than two percent of their value. The effect is little compared to the Ten-percent-inch, and with the Trump Chinese Goods will become more expensive. But it seems to be a first indication of the strategy of Beijing.
The rate of the Chinese currency is not only determined by supply and demand, but is controlled by the Central Bank of the country within narrow limits. The brand of 7.00 Yuan per US Dollar was considered by experts a long time as a hard limit would not be breached.
The USA have accused China again and again, the value of its currency, called Renminbi (people’s currency, the Yuan, the Counting unit)is artificially low. Just Donald Trump had accused in his first election campaign, in 2016, China unfair competition. The less the Yuan value is, the more competitive Chinese Goods abroad.
Sound barrier of 7.00 Yuan per Dollar
With all the squabbles about the true value of the Chinese currency, the Central Bank has in Beijing, but since may 2008, i.e. for more than eleven years, always ensured that you got for a Dollar, never more than 7.00 Yuan. This reluctance seems to Beijing to have now abandoned.
“We must now wait to see what happens next,” said Rob Carnell, chief economist of ING Bank in Singapore. If the Chinese Central Bank at the time of the next determination of the Yuan exchange rate against expensive, “it may mean that a weakening of the Yuan is part of your answer [to Trumps inch threat]”.
“My feeling is that this is the intention of the fall,” says Julian Evans-Pritchard of Capital Economics in Singapore. “The Timing speaks shortly after the tariff announcement by Trump.” Moreover, China is hardly the options for action have to react to trump’s recent threat to. “The sale of U.S. government bonds, or to the Export restriction of metals are not very strong measures. The currency is by far the strongest Instrument,” says the Economist.
In Hong Kong, a strike in parts of public life to a grinding halt, police used tear gas against protesters
Other reasons for the price decline
Other analysts doubt that China will use the Yuan as a weapon in the trade war. “I don’t see any evidence,” said Cliff Tan of Mitsubishi Financial in Hong Kong. “The Chinese don’t want to annoy Trump even more.” He and others explain the decline in the price with the strike and the protests in Hong Kong. “What is going on, ensures a high degree of uncertainty and nervousness,” said ING Economist Carnell.
For US President, Trump, the thing is already clear. “Currency manipulation!”, he tweeted on Monday, shortly after waking Up. And in the direction of its own Central Bank: “are you Listening to?”
The Federal Reserve had lowered interest rates in the United States only in the past week, although there was, according to the view of Gabriel Felbermayr, President of the Kiel Institute for the world economy, not an economic necessity. Trump had even pushed for a much stronger reduction in interest rates. His Tweet from Monday indicates that he wants to use the weaker Yuan now to a further reduction in interest rates in the United States. Lower interest rates the Dollar and make U.S. Goods weaknesses abroad more competitive.
A Devaluation threatens to race?
So it’s no wonder that some fear a currency war. An agreement in the trade dispute would be even less likely. “We do not believe that it will be in the foreseeable future, progress in solving the trade conflict,” said Ray Attrill, currency strategist at National Australia Bank in Sydney. “It is unrealistic to assume that the current negotiating tactics will bear fruit.”
Rob Carnell of ING Bank looks to be the similar. No one have expected that Trump would shortly impose after the end of the trade talks on Wednesday with new duties. The blame for China, a lot of questions. “Ask yourself whether the people with whom you negotiate, have something to say. And, of course, you want to make in negotiations, no concessions, and then the criminal duties to collect, because then you lose twice,” says Carnell.