I believe you've all heard of the China-US trade war. But I won’t bombard you with too much information just yet, since we’d like to keep things simple here at ELI9. This article will solely cover the topic: 𝘾𝙝𝙞𝙣𝙖 𝙗𝙚𝙞𝙣𝙜 𝙡𝙖𝙗𝙚𝙡𝙚𝙙 𝙖𝙨 𝙖 𝙘𝙪𝙧𝙧𝙚𝙣𝙘𝙮 𝙢𝙖𝙣𝙞𝙥𝙪𝙡𝙖𝙩𝙤𝙧.

𝟭. 𝗕𝗲𝗳𝗼𝗿𝗲 𝘄𝗲 𝗴𝗲𝘁 𝘁𝗼 𝘁𝗵𝗲 𝗺𝗮𝗶𝗻 𝘁𝗼𝗽𝗶𝗰, 𝗹𝗲𝘁’𝘀 𝗱𝗲𝗳𝗶𝗻𝗲 𝘁𝗵𝗲 𝘁𝗲𝗿𝗺 ‘𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆 𝗺𝗮𝗻𝗶𝗽𝘂𝗹𝗮𝘁𝗶𝗼𝗻’ 😉

The value of currency can be different when countries buy and sell their goods in another country. When the value of the dollar is strong, Americans have more purchasing power abroad. However, in this case, American exports can become relatively expensive for other countries. On the contrary, when the dollar is weaker, American exports are also cheaper for foreign buyers, thus, increases exports.

This is why some countries try to exploit that behavior by weakening their currencies to lift exports. That’s when currency manipulation happens. China used to do this in the past by holding down its currency to speed economic development.

𝟮. 𝗜𝘀 𝗖𝗵𝗶𝗻𝗮 𝗮 𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆 𝗺𝗮𝗻𝗶𝗽𝘂𝗹𝗮𝘁𝗼𝗿? 🤓

In August 2019, Donald Trump accused China of manipulating its currency by allowing the value of its currency to fall. But is it really true? Let’s analyze this situation.

The United States and many other developed countries let the market determine the value of their currencies and only affect the value indirectly. China manages its currency a little bit different though. Every morning, China's central bank signals what its desired foreign exchange rate for the yuan will be and allow traders to push the value up or down within a set range through the day. For the last 11 years, China has kept its currency below a 7:1 ratio to the dollar. Until 2019, that is.

China allowed the value of its currency to fall to the lowest level in over a decade, when the exchange rate fell below 7 renminbi to the dollar for the first time since 2008. The very next day, they set the exchange rate at a level that was weaker than the day before, but stronger than most analysts had expected.

The interesting thing is, the 2015 Trade Enforcement Act states three criteria for what makes a country a currency manipulator, and China meets only one among three criteria. Well technically, a country doesn’t need to satisfy all those criteria before the US can label it a currency manipulator. Most economists agreed with Trump administration’s claim, but some were starting to argue against the label now.

𝟯. 𝗔𝗻𝘀𝘄𝗲𝗿𝗶𝗻𝗴 𝘁𝗵𝗲 𝗺𝗮𝗶𝗻 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻: 𝗪𝗵𝘆? ✍🏻

First of all, there are many reasons for China’s decision. According to economists, the move appeared to be in line with economic and market forces.

As for why US would label China as a currency manipulator, analysts believed that this was a tactic to put extreme pressure on China in a rapidly escalating trade war. The US seemed to expect China to react negatively and agree to negotiate.

𝟰. 𝗪𝗵𝗮𝘁 𝗵𝗮𝗽𝗽𝗲𝗻𝘀 𝗮𝗳𝘁𝗲𝗿𝘄𝗮𝗿𝗱𝘀? 👀

Just so you know, the Trump administration eventually removed China’s designation as a currency manipulator to ease the situation. There are so many other perspectives on this topic that I couldn’t cover in this article. Therefore, I’m just going to leave some links below for you to explore.

See you next time!👋🏻

𝐑𝐞𝐟𝐞𝐫𝐞𝐧𝐜𝐞

✅ I also found a short video explaining currency manipulation, and it's in Vietnamese so I guess it'll be easier to understand: https://www.youtube.com/watch?v=DEb1bpM0Dzs

** ELI9 - nơi những đứa trẻ 9 tuổi nói về vấn đề kinh doanh bằng ngôn ngữ đơn giản nhất: https://www.facebook.com/explainlikeim9/