China’s currency fell the daily limit against the dollar on Monday (via MarketWatch):

HONG KONG (MarketWatch) — China’s currency staged a record loss against the U.S. dollar Monday, falling to the lower end of its daily trading limit, in what some analysts said is a policy shift as authorities let the yuan depreciate against the greenback in an effort to help bolster the decelerating economy.

If China follows a deliberate policy of pushing the value of their currency lower against the dollar, there will be a backlash in the US. A large group of US politicians already believe the Chinese currency is undervalued against the dollar and have threatened tariffs in response. This type of competitive devaluation was common during the Depression after the US enacted Smoot Hawley and devalued against gold.

Devaluation doesn’t work anyway as the US found out over the last few years. We raised our exports but paid more for our imports and the trade balance was basically unchanged. Competitive devaluations will result in protectionism and less international trade. That won’t benefit anyone.

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