dollar | Trump: Yuan devaluation will be 'devastating' to US competitiveness

Trump: Yuan devaluation will be ‘devastating’ to US competitiveness

August 11, 2015 1:17 PM (UTC+8)

 

Donald Trump doesn’t like China’s devaluation of the yuan. Not one bit.

“They’re just destroying us,” the real estate tycoon turned Republican presidential candidate said in a CNN interview Tuesday. “They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”

Trump’s comments came after China devalued its currency by nearly 2% early Tuesday. It was the biggest drop in the yuan’s value since 1994 and came on the heels of a string of poor economic data.

Donald Trump
Donald Trump

“We have so much power over China,” Trump told CNN. “China has gotten rich off of us. China has rebuilt itself with the money it’s sucked out of the United States and the jobs that it’s sucked out of the United States.”

The billionaire businessman has long been a critic of China’s currency policy, and is making it a foundation of his currently sparse policy platform.

China was one of the main reasons for why Trump said he was entering the 2016 presidential campaign.

When the reality-TV star launched his campaign in June he said: “When was the last time you heard ‘China’s killing us?’ They’re devaluing their currency to a level that you wouldn’t believe it makes it impossible for our companies to compete. Impossible. They’re killing us, but you don’t hear that from anyone else.”

In that speech he promised to help the US economy by being a tougher negotiator with China.

“They are ripping us. We are rebuilding China. We are rebuilding many countries,” he said in the launch speech. “China, you got there now – roads, bridges, schools. You never saw anything like it. They have bridges that make the George Washington Bridge look like small potatoes. …You have a problem with ISIS; you have a bigger problem with China.”

He may have a point. The devaluation of the yuan isn’t good for the US. Over the past year, the dollar has climbed 20% on a trade-weighted basis. This has hurt economic growth and corporate profits by making US exports more expensive.

Meanwhile, China has kept the yuan tightly pegged to the dollar. As its economy slowed and exports fell over the past year, the Chinese currency actually appreciated more than 10%. Not quite the proper recipe for dealing with an economic slowdown.

Pundits claim that China’s surprise devaluation will spark a string of devaluations around the world. But, this is a chicken or egg question. Already, quantitative easings by the European Central Bank and the Bank of Japan have devalued the euro and yen, respectively.

For years, politicians, including Trump, have said that China needs to let the yuan float to show its true value. At the time, the yuan would have been stronger than the dollar, helping increase US exports into China. But, the devaluation makes the dollar stronger and hurts the US’ global competitiveness.

So, in a case of be careful what you ask for, China decided to let the currency float at the risk of new trade tensions with the US. The biggest implication of the devaluation is it may put pressure on the US Federal Reserve Bank to delay its anticipated interest rate hike.

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