Last Monday, the People”s Republic of China allowed its currency to slide to its lowest level in more than a decade. Breaking 7 yuan to dollar level will have major impacts and create what economists and analysts call a dev
What does this mean? Was this a response to the raised tarriffs of the US government?
This move of China makes the Chinese yuan hit the 7-yuan-per-dollar level. Since the currency is devalued versus other currencies, it will cost less for us to buy Chinese products and more expensive for the Chinese to import US products, making exports to China more expensive.
This tries to offset the losses from the high tarriffs the US imposed on Chinese products which aims to control american purchases of Chinese products. Already, Chinas economic growth is adjusting by going a bit lower.
This explains why many US companies are leaving China. The stuff they made there will now cost much more than, if say, they were made in Vietnam Thailand and the Philippines.
This also explains why there is a slow, yet possibly escalating exodus of both Chinese and American companies which were once based in China, to these neighboring southeast asian states. This allows them to escape both the low yuan and high tarriff situations that make their established business uncompetetive and restrict trade.
Trump knows that his country is the biggest customer or buyer of Chinese products, that’s why his government slapped those tarriffs to limit or perhaps stymie the continued growth of the Chinese economy. It creates leverage for the US, and forces China to adjust.
China on the other hand, may have already foreseen such events taking place and have increased trade with neighbors.
US Presiset Donald Trump is using these tarriff barriers to inflict harm on the chinese economy by cutting their customers out. That however will also have its impact on US businesses using China as a low cost manufacturing base. They will have to spend money to adjust by moving operations.
In the long run, a currency war is not a good thing, however, as everybody will suffer, and will do so only because of policy impositions rather than the actual exchange of currencies. The value of the currency becomes dictated by politics and not actual growth. The measures are short term and can expose the global economy to shocks.
How will this affect us? Already a number of Chinese companies are looking to relocate to the Philippines, seeing our country as safe havens for their businesses especially those that trade with with the US or China.
Moving forward, large countries will continue to consolidate their economic positions by looking at themselves and their immediate neighbors. Their ability to create spheres of trade will tell us how well the long term growth will continue.
Watch out for India and Russia and Japans moves.