Question

In: Economics

What are the economic implications of China’s recent history of devaluing the yuan? Specifically, what are...

What are the economic implications of China’s recent history of devaluing the yuan? Specifically, what are the negative implications to major trading partners like Japan and the United States? Are there negative downstream impacts?

Solutions

Expert Solution

The main reason behind China devaluing its currency is to gain in exports ie trade under which their exports are cheap and imports are expensive which does not encourage imports and encourage more exports. is. Therefore, where countries such as Japan and America remain in a state of profit by doing cheaper export tax, both these countries face the situation of trade deficit.Dumping in that country is done by exporting cheaply on one side of China, due to which the local industry of these two countries gets hurt due to reduced competition.

Neighboring country China's currency manipulation policy suffers because their products are expensive due to lower competition, while China's products are cheaper.

This policy of manipulation reduces investor confidence in Chinese currency and may reduce the trust of investment in the long term, which will reduce the confidence of Chinese currency in people and has also been accepted as an IMF currency. Therefore, China may have to face big losses in the long term.


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