China played the currency devaluation card letting its currency slide in value against the dollar, making its goods cheaper abroad and offsetting American tariffs. Its unsurprising that the Chinese are using the currency as a weapon – it has been a mainstay in their armoury.
The devaluation of the managed renminbit will absorb the impact of the recent proposed 10% tariff without causing great damage but it is not fully offset the impact of 25% tariffs.
Additionally a falling renminbit would make U.S. products more expensive in China, compounding the effect of tariffs on U.S. exports – further exasperating the trade deficit.
Chinas motivation
Western commentators and analysts find China troublesome to fathom. This is due to the ‘free market’ prism through which they look at the share market. It is a fundamentally flawed starting position when trying to understand China!
There is a Cultural Chasm which is impossible for Westerners to understand – literally like fitting a round peg in a square hole. Eastern philosophy is long term by nature where as Western philosophy is NOT. Short term thinking is indoctrinated in our Western markets.
China wants to be Number 1. The 2016-2020 5 Year Plan makes this clear.
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