The drop effectively reduced the price of Chinese imports in dollars and has blunted the cost shock of higher tariffs. (The same thing happened with the peso following a similar threat against Mexico in late May; the peso plunged over 2% in less than an hour.) (This doesn’t take into account FX adjustments that may lessen the actual impact of the levies. On Friday, Trump once again asserted that China is manipulating its currency. What’s more, a weaker currency would reduce the purchasing power of Chinese consumers.Nevertheless, Trump’s trade war might just force China’s hand.“He is relying on China not to respond to his tariffs with a weaker currency,” Setser said.

Source: Economic Times June 14, 2019 14:26 UTC