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 Beijing handed the Republican presidential hopeful more ammunition
to rail against China when it devalued the yuan on Tuesday, and
Trump did not miss a chance.
"(China) continuously cuts their currency, they devalue their
currency," Trump said on Wednesday during a campaign stop in Birch
Run, Michigan. "They've been doing this for years - this isn't just
starting."
Short-term events aside, though, data shows China's yuan has in fact
been strengthening over the last 10 years, dramatically so. And
while its appreciation against the dollar has abated in the last
couple of years, the yuan has continued rising against the
currencies of most of its trade partners, including Japan and the
euro zone.
A weak currency lowers the price of a country's exports, making them
more attractive to international buyers.
"It is hard to call the yuan weak. It is less strong," said Marc
Chandler, global head of currency strategy at Brown Brothers
Harriman in New York.
Over the last decade, the trade-weighted yuan index, a measure of
its value against the currencies of China's main trading partners,
has risen by 43 percent, according to data from the Bank for
International Settlements.
A Trump spokesperson was not immediately available to comment. Trump
was not the only Republican candidate to weigh in on the yuan, as
Senator Lindsay Graham of South Carolina called China's actions
"just the latest in a long history of cheating." Other U.S. elected
officials from both parties have criticized China's moves as well.
The yuan has fallen 2.9 percent against the U.S. dollar over the
last two days, 3.0 percent against the yen in the same period, and
1.6 percent against the Korean won, currencies of three of China's
largest trading partners. Markets worldwide have been roiled for the
last two days since Beijing devalued its currency.
RECENT GAINS
But the currency's fall thus far only offsets some recent
trade-weighted gains. Against the euro, for instance, the yuan has
strengthened 5 percent in 2015. It is up more than 4 percent against
the Korean won, and nearly 13 percent against the Malaysian ringgit.
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The yuan's trade-weighted index is constructed as follows: 31.7
percent is weighted to emerging Asia - countries such as Malaysia
and Indonesia - 18.5 percent to the United States, 17.4 percent to
Japan and 16.2 percent to the euro zone. Other industrial countries,
central and eastern Europe and Latin America make up the remaining
16 percent.
"So China has weakened more than 2 percent in the last two days, big
deal, does that really take away Malaysia's competitiveness?" said
Chandler.
In fact, the U.S. dollar is one of the few spots where the yuan has
failed to gain headway in 2015, sliding 3 percent. The dollar has
strengthened against almost all currencies for most of 2014 and 2015
as investors factored in expectations of a Federal Reserve interest
rate hike.
But in 2013, the yuan had gained 2.8 percent against the dollar, and
in 2012, had risen 1 percent.
Still, if what is still a modest decline in the yuan turns into a
full-blown slump, a "broader part of the political spectrum in the
U.S. will voice concern," wrote Jens Nordvig, global currency
strategist at Nomura. Given that the change in China's policy makes
its currency more sensitive to market movements, the Obama
administration may not react negatively initially.
"If we get 5 percent quickly, then Congress can turn quickly,"
Nordvig told Reuters.
Late on Wednesday, the dollar was up 1 percent against the yuan at
6.3870.
Chandler urged market participants to wait and see how all this
would play out. "It may not be that bad after all."
(Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gaffen and
Tomasz Janowski)
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