The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Ronak R Choksy, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur
With President Trump entering the White House, concerns over US – China trade war looms over the global economy. Currently, China is US’s largest trading partner and accounts for 21% (~ $350 billion) of US imports. If President Trump were to take the protectionist approach and impose a 35% – 45% tariffs over imported Chinese goods, China might retaliate with its own punitive trade actions. One of the ways in which China could react is by allowing its currency, the renminbi, to free float. In normal circumstances, if the renminbi is depreciating, the central bank would interfere and not allow the renminbi to drop by more than 4%. But People’s Bank of China might consider not interfering and letting their currency depreciate against the USD. This will in turn make the Chinese goods cheaper in the global markets, and this time China cannot be blamed of currency manipulation.