We all have heard and experienced that the arch-rivals try to outwit each other. Both parties try to establish their supremacy over others by putting forward tough challenges. But have we ever wondered what the weakening of one’s strength leads to the dismantling of other’s strategies and they both get worse off simultaneously? It seems to be a strange proposal but it is a harsh reality reflected after a surprising decision announced by the Chinese officials recently. They announced the devaluation of the country’s currency, the yuan and this historic decision resembled to be an astonishing move that indicated the nation’s slowing economy.
The yuan was down 4.4 percent against the U.S. dollar, which could have significant impacts on U.S. exports to China, as well as the global economy as a whole. Traditionally, the yuan’s value is directly linked to the dollar’s value. But this move, according to reports, ties the currency’s value more to the market—the more common practice for setting currencies’ values. Kamran Dadkhah, an associate professor of economics at Northeastern University with expertise in international economics, describes the devaluation process and what it could mean for the U.S. economy.
The aftereffect of this decision was quite obvious as the immediate price of Chinese goods and services fell gradually for the outside world, while imported goods are tending to become more expensive for Chinese citizens. The depreciation, Dadkhah said, is intended to boost exports and impede imports to improve the country’s balance of trade. Considering the relationship between the U.S. and China is partly based on their dealings in the import-export business, but their financial ties will not end there. Dadkhah elucidated, “A slowdown in the growth of a trading partner and a devaluation of its currency will have repercussions in the U.S. economy and the stock market. But the repercussions in Asian economies will be stronger.”