The depreciation of the Chinese yuan below the psychologically important level of seven to the US dollar, followed by the United States Treasury Department's prompt designation of China as a "currency manipulator", marks a dangerous escalation of the US-China trade war, with worrying implications for not only trade, but also financial and currency markets.
There are valid economic reasons for China's currency to weaken: China's economy is growing at its slowest pace since 1992; its current account surplus, which was 10 per cent of GDP in 2007, has all but vanished; and there is the trade war itself, which naturally puts downward pressure on the currency of a country faced with rising tariffs.
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