China’s currency just dropped to its lowest level in a decade — and US exporters will pay the price – Business Insider

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FILE PHOTO: A U.S. dollar banknote featuring American founding father Benjamin Franklin and a China's yuan banknote featuring late Chinese chairman Mao Zedong are seen among U.S. and Chinese flags in this illustration picture taken May 20, 2019. Picture taken May 20, 2019. REUTERS/Jason Lee/Illustration/File PhotoReuters

  • China’s renminbi slipped to its lowest level in a decade on Thursday, after earlier this month allowing its currency to weaken to more than 7:1 to the dollar.
  • The weaker currency should help China in the trade war, as it makes its exports comparatively cheaper, but also makes imports into China more expensive. 
  • China retaliated to added tariffs imposed by Trump earlier this month by letting the currency fall — in doing so it sent markets tumbling. 
  • View Markets Insider’s homepage for more stories.

China’s renminbi (yuan) slipped to its lowest level in over a decade on Thursday, dropping 0.2% to 7.0749 to the dollar. 

The dollar-pegged currency trades within a band set by China’s government, and earlier this month the band was lowered in order to fight back against Trump’s added tariffs. A weaker renminbi makes Chinese exports comparatively cheaper, potentially lifting overseas demand and boosting the economy.

The move means US exporters to China are going to feel the brunt of the lower currency, as goods will become more expensive to sell to the superpower. 

However, the horse may have already bolted the stable, according to Mark Williams, senior Asian economist at Capital Economics.

“The renminbi’s weakness will give a small boost to China’s exporters, and help offset some of the impact of US tariffs,” Williams said. “But we’re beyond the point where exchange rate moves matter much for US producers exporting to China.”

“China’s demand for US goods has already collapsed,” he added. 

Chinese imports from the US have dropped significantly, falling 19% in July from a year earlier.

China exportstradingeconomics.com

Hong Kong’s Hang Seng stock index fell by 0.8% on the news.

China’s move earlier this month to let its currency slip sent markets into meltdown. Stocks fell more than 2%, with the Chinese government blaming protectionist policies for their decision.

At the time, the government said it “has the experience, confidence, and capacity to keep the renminbi exchange rate fundamentally stable at a reasonable and balanced level.”