Question

Should China have to devalue their currency to allow US exports to be cheaper to buyers in China? The past two presidents have tried negotiations on this and achieved only a small response.

How does a devaluation of a country's currency affect its imports and exports?

Answer 1

In the past China has been artificially devaluing its currency (the yuan) and as a result allowed China’s price on exports to remain low and competitive in the global market, which has contributed greatly to the China's rapidly growing economy. President Trump promised to be tough on China and pressurised China to appreciate it's currency so that they would be competing fairly with countries around the world. However, in US, the most influential economic forces also wants devalued yuan because large multinational corporations and Wall Street gains from the undervalued currency as they manufacture goods in China and export them from there. When China has a devalued currency, manufacturing goods are cheaper and products that are shipped back to the US or around the globe can be sold at a more competitive price. Thus even though the US government has spoken out against the devalued yuan, there is a very little chance to force it to devalue without losing the highly-valued support of Wall Street and the MNCs. And even if they do so, Chinese exports would never permit their government to go through with it.

Devaluation occurs when a country intentionally lowering the value of it's currency. Consequently it lowers the price of a country's exports on international markets and increases the price of its imports as the value of the country's currency is now lower on global markets. Therefore, a government might devalue its currency to provide its domestic companies an edge over competition from other nations. However devaluation declines the buying power of consumers in the nation. Moreover allow inefficiencies to persist in domestic companies as there is now less pressure to be concerned with production costs