For more than a month, China seemed to be enjoying the advantage of exchange-rate depreciation without the global backlash and panicky capital outflows that accompanied the bout of yuan weakening in 2015. Then Donald Trump took issue.
The U.S. president’s charges that China is “manipulating” a currency that’s been “dropping like a rock” came at the end of a six-week slide in the yuan that took it to its lowest level in more than a year against the dollar. The remarks, in a tweet and an interview with CNBC, suggested to market participants that the U.S.-China trade war is now broadening to include currencies, putting fresh scrutiny on Chinese management of the yuan.
After overseeing a slide in the yuan of almost 5 percent since mid-June, the question for Chinese officials now is whether to turn to other policy measures to support growth in the face of headwinds to exports. Wang Tao at UBS Group AG is among those predicting China will use other tools than the exchange rate to “cushion the blow” from the trade war.