China's currency has just dropped to its lowest level in a decade – and US exporters will pay the price

Reuters

• The Chinese currency, the yuan, slipped to its lowest level in ten years on Thursday, a few weeks after China allowed it to weaken beyond the remarkable level of seven dollars per dollar.
• The weaker currency should help China in its trade war with the United States because it makes Chinese products relatively cheaper and more attractive, but it also makes other countries' exports more expensive for Chinese importers.
• China responded to the new tariffs announced by President Donald Trump earlier this month by letting its currency fall, causing the markets to plummet.
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The Chinese currency, the yuan, reached its lowest level in more than 10 years on Thursday, down 0.2% to 7.0749 percent against the dollar.

The dollar-denominated currency, also known as the renminbi, is trading within a band defined by the Chinese government. Earlier this month, the band had been mobilized to defend against the tariffs recently announced by President Donald Trump. A weaker currency makes Chinese exports relatively cheaper and more attractive, which could potentially boost foreign demand and stimulate the Chinese economy.

In turn, this decision could affect the demand of US exporters, whose products become comparatively more expensive in China.

The horse may have already locked the stable, according to Mark Williams, Senior Economist for Asia at Capital Economics.

"The weak renminbi will give a slight boost to Chinese exporters and help offset some of the impact of US tariffs," Williams said. "But we are beyond the point where exchange rate fluctuations matter a lot to US producers exporting to China."

"Chinese demand for US products has already collapsed," he added.

Chinese imports from the United States decreased significantly, by 19% in July compared to the previous year.

tradingeconomics.com

Hong Kong's Hang Seng stock index fell 0.8% against the latest currency news.

The decision made by China earlier this month to let its currency slip above the notable level of seven yuan to one dollar caused the markets to collapse. Shares fell by more than 2%, as the Chinese government attributed its decision to protectionist policies.

At the time, the government had declared that it "had the experience, the confidence and the ability to keep the exchange rate of the RMB fundamentally stable to a reasonable and balanced level".