Keep it brief

• For the first time in more than a decade, China allowed its currency (yuan) to weaken past the psychologically important point of 7 to the dollar.
• President Donald Trump said
  • that marked a “major violation” and
  • accused China of unfairly wielding its currency to retaliate against the US.
• The weakening yuan will most likely cast another layer of uncertainty on US-China trade talks, which aren’t set to resume in person until after a scheduled September 1 tariff escalation.

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What’s going on here?

• President Donald Trump lashed out at China over what he called a “major violation” after China allowed its currency to weaken below a key threshold against the dollar, marking the latest point of contention in an escalating trade dispute between the world’s two largest economies.
• The Chinese yuan sank past the psychologically important point of 7 to the dollar for the first time in more than a decade, a development Trump saw as an act of economic retaliation against his administration.

What does that mean?

• A less valuable yuan can counteract American tariffs by making China’s exports cheaper. Frustrated with the state of trade negotiations between the two sides, Trump said he would expand tariffs to virtually all imports from China on September 1.
• American officials have long warned China that weakening its currency would undercut American producers. The Treasury Department found in May that no country met the criteria to be labeled a currency manipulator but said it was closely monitoring China and eight other trading partners for such actions.

The bigger picture

• The weakening yuan is likely to cast another layer of uncertainty on US-China trade talks, which aren’t set to resume in person until after Trump’s proposed escalation is to take effect.
• In May, the Commerce Department said it planned to expand punitive measures for any country found to unfairly wield its currency in the global market. But Trump has suggested in recent months that the US artificially weaken the dollar, a move that would be similarly precluded by international agreements.

Content source: Heeb. G. (2019). Trump accuses China of a 'major violation' after its currency breaches a key level. Markets Insider. Available from: https://markets.businessinsider.com/news/stocks/us-china-trade-war-trump-alleges-yuan-renminbi-currency-manipulation-2019-8-1028417885?utm_campaign=browser_notification&utm_source=desktop [Accessed 6 Aug 2019]