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Is the US China trade war set to become a currency war as well? The question arises because of the sharp fall of the Chinese currency, the renminbi, in recent weeks. It's now trading at around its lowest point for a year, having shed 8% of its value against the US dollar since the middle of April.
This has stoked the ire of Donald Trump, the US president, who has accused China of manipulating its currency. The reason that Washington is irked is that a weaker Chinese currency makes Chinese exports to the US cheaper, thereby counteracting the impact of US tariffs on some $34 billion US dollars in Chinese goods.
Analysts in China say the renminbi's depreciation has not been engineered by Beijing, but by investors selling the currency in anticipation that the trade war will cause China's trade surplus to shrink. For now, the two sides appear far apart. Mr Trump is threatening an escalation in the trade war to cover all 500 billion US dollars in Chinese exports to the US. If that happens, investors may decide to keep selling the renminbi. And unless US leaders decide to talk to the Chinese about how to bring an end to the trade friction, Beijing may allow the renminbi to slide further.
