China’s Currency Devaluation Will Hurt China More Than It Hurts The United States

President Donald Trump announced last week that the United States will impose 10 percent tariffs on $300 billion of Chinese imports beginning Sept. 1. At the beginning of this week, China retaliated by ordering state enterprises not to purchase U.S. agricultural goods and letting the Chinese yuan fall below the psychologically important rate of 7 yuan against $1.

The world hasn’t seen the yuan devalued to this level since 2008. China denies that the devaluation of its currency was a deliberate retaliatory step against Trump’s tariff threat. But no one believes it.

Stock markets worldwide experienced significant losses in reaction to China’s retaliation. The Dow Jones Industrial Average dropped more than 900 points during Monday’s trading hours. According to MarketWatch.com, the U.S. major stock markets’ indices ended the day with “the S&P 500 off 6% from its record close set on July 26, while the Nasdaq is off 7.3% from its all-time closing high set the same day and the Dow has pulled back 6% from its July 15 record finish.”

The steep sell-off reflects investors’ concern that the escalating U.S.-China trade war means more uncertainty ahead, and investors hate uncertainty more than anything. What China did this week is its strongest counteraction so far in its ongoing trade war with the United States. It might have achieved the desired effect of causing panic among U.S. investors and businesses, but its action will end up hurting China more than it hurts the United States

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