China currency depreciation opens up new front in trade battle

World Today

The trade battle between the U.S. and China appears poised to escalate even further.

China’s currency dropped to a historic low on Monday – prompting U.S. accusations the move was aimed at undercutting its most important trade partner.

CGTN’s Owen Fairclough reports.

Is this the next front in the U.S. China trade war? China’s renminbi or yuan tumbled to just under seven to one U.S. dollar on Monday — its lowest level since May 2008.

And President Donald Trump revived accusations Beijing was manipulating the yuan’s value.

“China dropped the price of their currency to an almost historic low” Trump wrote on Twitter, suggesting the U.S. central bank, the Federal Reserve, should retaliate by driving the dollar’s value down.

The People’s Bank of China blamed the drop on the impact of tariffs.

China’s central bank pegs the yuan to a basket of two dozen currencies, including the U.S. dollar. Partly driven by market forces, the bank allows the yuan to rise and fall within a set band.

The bank insists it doesn’t manipulate its value—a view supported by the International Monetary Fund.

A devalued yuan makes Chinese exports cheaper. Tariffs are a surcharge on products paid by the people buying them.

So, ironically, a cheaper yuan should offset the tariffs that could hike prices on Chinese-made goods like iPhones.

But it’s an extra sting in the tail for U.S. farmers who’ve been hit by Chinese tariffs on export crops like soybeans, because a lower-valued yuan makes their crops more expensive.

And there appears to be no letup in the conflict. The U.S. is poised to impose even more tariffs on Chinese goods to curtail what it deems unfair trade practices—a charge that Beijing denies.