Monday 5 August the American stock markets experienced the worst day of the year. In response to the US decision to extend import tariffs to more Chinese products on September 1, China announced a reduction in the value of the yuan. Is there a currency war threatening now that China is throwing its own currency into battle?
The decision of the Chinese Central Bank to lower the value of the yuan caused US stock prices to plummet. With the intervention, the Chinese hope to mitigate the consequences of the extra import rates of approximately 268 billion euros that will come into effect on 1 September. Import tariffs on Chinese products with a value of 220 billion euros already apply.
Due to the devaluation, 1 dollar is now worth slightly more than 7 Chinese yuan, the lowest value since 2008. Despite the additional levies, Chinese products are becoming cheaper for the American consumer. US president Trump wants to use import tariffs to make products from China more expensive, in order to support American industry.
In addition to the devaluation of the currency, China also ceases the import of American agricultural products. Among other things, China had promised to buy millions of tons of soybeans from American farmers. With the measure, China wants to hit the farmers who voted for Trump in 2016.
China is sending a message that it will not be toyed with. Last week there seemed to be a breathing space in the trade war, but Trump turned out not to be satisfied with the outcome of the talks with China. That is why he announced the additional import duties.
The Chinese Central Bank claims to have been forced into devaluation by Trumps “unilateral actions and protectionist measures” directed against China.
People’s Bank of China condemns accusations
President Trump spoke out against the Chinese decision to devalue the yuan. On 6 August, the People’s Bank of China (PBOC) slammed Washington’s decision to designate China as a “currency manipulator”. “The US side disregarded the facts and unreasonably labelled China a ‘currency manipulator’. The Chinese side is firmly opposed to this”, the statement read.
The bank stressed that the decision would not only undermine the global financial order and “bring turmoil to the financial market”, but would also damage the recovery of the global economy and trade.