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Currency War? U.S. Stocks Take Huge Hit After Chinese "Currency Manipulation"

By: Politicized News

· Business

The Dow Jones Industrial Average closed down 767 points on Monday after new developments in the U.S./China trade war. Monday's sell-off was triggered mainly by China's retaliation to President Trump's announcement that the United States will roll out a new 10 percent tariff on $300 billion worth of Chinese goods. In response to the announcement, China attempted to devalue the yuan, an action which put the United State’s economy in jeopardy.

Devaluation is an economic tool because it combats tariffs. "Allowing the yuan to weaken makes Chinese imports into the United States less expensive, effectively offsetting the impact of the tariffs, and making U.S. companies less competitive," said Nicole Tanenbaum, chief investment strategist at Chequers Financial Management. This devaluation was designated an act of currency manipulation by the United States Treasury Department. According to Breaking 911, "As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China's latest actions." This currency devaluation is a move that not only escalated the trade war tensions but also left many on Wall Street fearful of a possible currency war as well.
So what is a currency war? According to a CNN article, "Currency wars — in which countries get locked in a cycle of devaluations — hit both consumers and businesses, triggering inflation and sending asset prices plummeting." Understandably, this sounds like a horrible thing for all parties involved. You may even be asking yourself, why would anybody do this? The answer to that question is simple. By lowering the value of a country's national currency, their exports become cheaper in foreign markets, making the countries export industry stronger. An active export market provides a source of leverage in a trade war and economic gain for the country, something countries trapped in and crippled by long, drawn-out trade wars yearn for.

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