Can a weaker yuan help China deal with the trade war fallout?
With a gradual depreciation of currency on the cards, analysts are divided over how it will play out for exports and the broader economy
A gradual depreciation of the yuan is likely to be on the cards as Beijing tries to deal with the trade war with Washington, but analysts are divided on how a weaker currency will affect China’s exports and the broader economy.
The yuan has already lost 7 per cent against the US dollar in the last four months as trade tensions rise, and US President Donald Trump this month complained about China’s currency “manipulation” – an allegation Beijing denied.
Excluding other factors, a cheaper yuan could help to boost exports because it would make Chinese products more competitive on price.
Based on his calculation, Olivier Blanchard, former chief economist with the International Monetary Fund, tweeted this week that a 7 per cent depreciation of the yuan might be enough for China to offset Trump’s move to impose 25 per cent tariffs on US$50 billion of Chinese imports as well as 10 per cent duties on another US$200 billion of products.
But in reality, the situation could be far more complicated. Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said the exchange rate had implications for trade across the board, but Trump’s tariffs were targeted – so, for example, a 7 per cent devaluation of the yuan may not help a tech product hit with a 25 per cent duty.