Chinese Yuan Continues To Tumble In Value Against U.S. Dollar

Oct 31, 2018
Originally published on October 31, 2018 7:22 pm
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President Trump says he wants to force China to stop abusive trade practices by slapping tariffs on billions of dollars in Chinese imports. One problem is that the value of China's currency has been dropping this year, which is undercutting the tariffs' impact. NPR's Jim Zarroli explains.

JIM ZARROLI, BYLINE: President Trump of course likes to boast about the strong U.S. economy and all the good things it means for the United States.

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PRESIDENT DONALD TRUMP: We are the economic envy of the entire world. When I meet the leaders of countries, the first thing they say invariably is, Mr. President, so nice to meet you. Congratulations on your economy.

ZARROLI: But the sizzling economy also means something else. The U.S. dollar just keeps getting stronger. It's up against the euro, the yuan, the peso - just about every major currency. Here is David Dollar - yes, that is his name - who was economic emissary to China in the Obama Treasury Department.

DAVID DOLLAR: This is actually a worldwide phenomenon. The dollar is up about 7 or 8 percent on average against all our trading partners.

ZARROLI: And the dollar is really gaining ground against China's yuan. A dollar would have gotten you 6.2 yuan in late March. Today it gets you nearly 7. It's the lowest it's been in a decade. Linda Lim, an economist at the University of Michigan, says the drop in the yuan raises questions.

LINDA LIM: When the yuan falls, it's because people are selling it and buying dollars, right? And so the question is why are they selling it and buying dollars.

ZARROLI: And Lim says there are several answers. For one thing, the Fed is raising interest rates which makes U.S. investments like Treasury debt more lucrative. So people want to buy more U.S. assets. And to do that, they need dollars. Dollars are in demand. Meanwhile, China's economy is slowing. And so its currency is weaker. The strong dollar means that Americans can buy more from overseas, especially from China. And they are, says David Dollar.

DOLLAR: So you actually see the U.S. trade deficit rising very rapidly this year. Trade deficit's up about 10 percent year on year.

ZARROLI: The strong dollar also has an impact on President Trump's trade agenda. The president placed tariffs on Chinese goods to make them more expensive, so Americans wouldn't buy as many. It was a way of putting pressure on the Chinese economy. But the stronger dollar then makes them cheaper, says Linda Lim.

LIM: The tariffs are what will increase the cost of Chinese goods in the U.S. The weakening yuan will partly counteract it.

ZARROLI: Trump has so far imposed tariffs of 10 percent on $250 billion in Chinese imports. But the yuan has fallen that much since the spring, which blunts their impact. Lim says the falling yuan may also have another impact. Foreign companies that have been thinking about investing in China will now find it cheaper to do so.

LIM: It is now cheaper for U.S. companies to invest in China - you know, for Tesla to buy land and build a plant.

ZARROLI: Trump has promised to raise tariffs even more after the new year. They're set to rise to 25 percent. And if he does that, China is more likely to feel an impact. But for now China's falling currency is helping it absorb the blows from Trump's trade policy. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.