Patriotic parades showcasing Chinese power lack the country’s most potent weapon: its currency. Throughout the trade war with the US, China has mostly played nice on this front. New US tariffs, affecting $300bn of Chinese goods, put an end to this. The Chinese central bank has let the yuan fall below seven to the dollar. Investors must now guess how much pain China and the US will inflict on each other.
The US has designated China as a currency manipulator for the first time since 1994. This looks political. China met just one of the three US Treasury criteria of a currency manipulator. Even so, the US may impose penalties.
A weaker yuan should help Chinese business cope with US tariffs and a manufacturing slowdown. Exporters should be able to bolster weakening profit margins. Smartphone makers including Huawei — a US security bugbear — and Xiaomi are among the electronics groups that would benefit.
