China’s currency keeps sinking against the dollar.
Since Donald Trump won the U.S. presidential election last week, Beijing has allowed the yuan to tumble. The fall continued Tuesday, with one dollar buying around 6.86 yuan, the weakest the Chinese currency has been since the dark days of the global financial crisis in late 2008.
Trump’s victory has cast a deep shadow over the relationship between the world’s two largest economies. On the campaign trail, he threatened to impose tariffs of as much as 45% on Chinese goods and label Beijing a currency manipulator on his first day in the White House.
Hitting China with the currency manipulator tag is largely a symbolic move, but it could fuel tensions with Beijing and serve as the first step on a path toward introducing real penalties.
The market impact of Trump’s win is already creating an immediate headache for the Chinese government. The U.S. dollar has surged against other currencies on expectations of a rate hike by the U.S. Federal Reserve next month and the potential for higher growth and inflation under Trump.
‘A fragile position’
Beijing doesn’t want the yuan “to follow the dollar up against all these currencies,” which makes Chinese exports less competitive, said Julian Evans-Pritchard, a China expert at Capital Economics. “The risk of course is that means letting the currency fall against the dollar. It’s quite a fragile position they’re in.”
If the yuan drops too sharply against the dollar, it could set off a repeat of the market panic in August 2015 and January 2016. It would also swell the flows of money pouring out of China’s slowing economy since last year.
More than $540 billion has left China so far this year, nearly 10% higher than during the same period in 2015, according to estimates from the Institute of International Finance. That in turn puts huge downward pressure on the yuan, which is also known as the renminbi.