Devaluing the Yuan

[Douglas Buckland + 6,308]

As I have stated before, I am not a 'financial guy', so this is directed towards those out there that are.

As we can all see from the headlines, China has now dropped the value of the yuan in the latest move in the trade war.

What does this actual mean from a global economics perspective? This tends to suggest, as some say, that China was always manipulating their currency in the past, which was one of the problems.

Is China running out of tools to fight this trade war?

Devaluing the yuan may make Chinese goods more attractive, but this makes it more difficult for the common Chinese.

Ignore my rambling, I would really like to see comments from the 'financial guys' here as to how this devaluation will play out.

Thanks in advance!

[Tom Kirkman + 8,860]

"White House trade and manufacturing policy advisor Peter Navarro, appears with Lou Dobbs to discuss the current status of the U.S.-China trade conflict.

Within the interview Navarro discusses the impact of China devaluing their currency as a strategy to avoid U.S. tariffs on Chinese imports.  WATCH: "

 

https://community.oilprice.com/topic/6591-trump-vs-xi-trade-battle-running-commentary-from-conservative-tree-house/?page=3#comment-60949

[Tom Kirkman + 8,860]

 

9 hours ago, Douglas Buckland said:

As we can all see from the headlines, China has now dropped the value of the yuan in the latest move in the trade war.

What does this actual mean from a global economics perspective? This tends to suggest, as some say, that China was always manipulating their currency in the past, which was one of the problems.

Is China running out of tools to fight this trade war?

For your consideration:

Beijing Launches DPRK Rockets Over Escalating Trade Tension – Trump Launches Treasury Missile Designating China a Currency Manipulator

Beijing has once again used their proxy province of North Korea to launch small two short-range ballistic missiles as leverage in the U.S. and China trade confrontation.

WASHINGTON – For the fourth time in less than two weeks, North Korea has fired projectiles into the Sea of Japan, a U.S. official said.

The two projectiles, fired on Tuesday morning local time, were assessed to be similar to the short-range ballistic missiles tested by North Korea last week, the official said. (read more)

Moments later President Trump and Treasury Secretary Steven Mnuchin fired a counter-missile directly into the heart of Beijing’s trade currency manipulation:

(Treasury) The Omnibus Trade and Competitiveness Act of 1988 requires the Secretary of the Treasury to analyze the exchange rate policies of other countries.

Under Section 3004 of the Act, the Secretary must “consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator.

As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions. (more)

And so the dance with the dragon continues…

Chairman Xi devalues Chinese currency… Trump hits Chairman Xi with tariffs…. Beijing launches DPRK rockets…. Trump hits Chairman Xi with IMF/WTO designations….

Unfortunately for Chairman Xi Jinping, President Trump has bigger economic missiles than Beijing.  Kyle Bass outlines the scale of what economic weapons President Trump has in his arsenal that are far more devastating than little Kim’s rockets.  ...

[John Foote + 1,135]

Funny thing. Chinese own well over a trillion is US debt. Now they have to pay more for US imports, but debt being paid back, they just got a boost in their return. If they want to continue increasing their position of US debt, they are best doing it with US dollars they already have, and not converting their currency into dollars.

And they've made investing in China with dollars go farther than it did last week. The private herd of money is pretty darn confused right now, but the devaluation, taken singularly, not a big deal to China, it's just another poker chip. You raise tariffs a bit, I'll counter. It costs more to import American stuff so we are a bit less competitive but the trade imbalance was already one-sided. Remember, mostly nobody has being paying tariffs because they didn't kick in when announced. Only in the past couple of months has big business started to believe the tariffs might really be real and in the a long haul. 

If you want to know is China winning, what do rich Chinese do? Overall they move money offshore and often leave the country themselves. As long as people leave if they can, and take their money with them if they can, the country is not winning because opportunity is better elsewhere. 

 

 

[Marcin + 519]

On 8/6/2019 at 5:00 AM, Douglas Buckland said:

As I have stated before, I am not a 'financial guy', so this is directed towards those out there that are.

As we can all see from the headlines, China has now dropped the value of the yuan in the latest move in the trade war.

What does this actual mean from a global economics perspective? This tends to suggest, as some say, that China was always manipulating their currency in the past, which was one of the problems.

Is China running out of tools to fight this trade war?

Devaluing the yuan may make Chinese goods more attractive, but this makes it more difficult for the common Chinese.

Ignore my rambling, I would really like to see comments from the 'financial guys' here as to how this devaluation will play out.

Thanks in advance!

Very good question.

China keeps stable its currency yuan against the basket of currencies weighted by trade value it is called: China Foreign Exchange System RMB Index. So Euro and US Dollar are the most important, but also Japan Yen and Korean Won.

Please find below the graph:

 

As you can see it is more or less stable in the last 2 years. Sometimes appreciation of a single currency like US dollar vs all currencies (also Euro) in Apr-Jul 2018, changes also the exchange rate of US dollar vs Chinese yuan. So global appreciation of US dollar by 10% in Apr-Jul 2018 was the major cause of US dollar appreciation against Chinese yuan from 6.4 to about 6.8-6.9. So USD/CNY rate from end of Jul 2018 to end of Jul 2019 was 6.85-6.95.

The rate was coming to psychological value of 7.00 so there was also a lot of speculation in media that for some trust reasons China will keep yuan below 7.00(artificially high) . This was not the case as China have shown that 7.00 is just a number. Today the exchange rate is 7.08.

Today (2019) China has balanced current account. Its GDP is driven by consumer spending and investment (exactly like USA).

China had a peak current account surplus of 10.3 GDP in 2007, it was export oriented economy back then. Later current account surplus was decreasing as starting in 2008 country was rebalancing to consumer spending model. In 2016 it was 1.6, in 2017 it was 1.3 and in 2018 it was only 0.4% of GDP. This year China will probably have first current account deficit.

Current account surplus is the main measure whether country is potencially a currency manipulator.

So in 2007 China like other export engines of this year: Germany and South Korea could be viewed as currency manipulator.

 

This year with Chinese current account deficit it is certainly not the case by simple definition created by US Department of Treasury itself.

So decision to name China a currency manipulator had no economic/factual substance.

It was purely political decision taken by Trump administration as part of economic war with China.

Similar argumentation you can find at Bloomberg, Reuters etc.

End of factual information.

Start of my comment (do not read if not ready for US critique) : This political decision was wrong and against vital US interests as it has shown that US is politicizing important economic issue. against the facts for short-term political gain. World just shrugged off. It is a pity, but the decision actually was good for long-term Chinese interest.

 

Edited October 22, 2019 by Marcin
clarification

[Guest]

2 hours ago, Marcin said:

This political decision was wrong and against vital US interests as it has shown that US is politicizing important economic issue.

I'd say highlighting. 

Yes @Douglas Buckland , anything for an attempted advantage. Who would have thought that?

Edited October 22, 2019 by Guest

[Guest]

https://www.investopedia.com/trading/chinese-devaluation-yuan/

@Douglas Buckland 

[Enthalpic + 1,496]

trump wants to devalue the US buck just as much (I called this a long time ago for long time readers).

trump: "China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games - as they have for many years!"

Now consider this for you older folks with some savings - he wants to directly reduce the buying value of your savings.

Edited October 23, 2019 by Enthalpic

[Enthalpic + 1,496]

While increasing the prices of goods... enjoy your retirement! He has enough money and will be dead in less than 15 years - screw you, screw the climate, who cares!