• Reuters


Bashing China is a time-honored tradition among U.S. candidates for higher public office, and no one has done that with more zest in this election cycle than billionaire Donald Trump.

Beijing handed the Republican presidential hopeful more ammunition to rail against China when it devalued the yuan on Tuesday, and Trump did not miss a chance.

“(China) continuously cuts their currency, they devalue their currency,” Trump said on Wednesday during a campaign stop in Birch Run, Michigan. “They’ve been doing this for years — this isn’t just starting.”

Short-term events aside, though, data show China’s yuan has in fact been strengthening over the last 10 years, dramatically so. And while its appreciation against the dollar has abated in the last couple of years, the yuan has continued rising against the currencies of most of its trade partners, including Japan and the eurozone.

A weak currency lowers the price of a country’s exports, making them more attractive to international buyers.

“It is hard to call the yuan weak. It is less strong,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

Over the last decade, the trade-weighted yuan index, a measure of its value against the currencies of China’s main trading partners, has risen by 43 percent, according to data from the Bank for International Settlements.

A Trump representative was not immediately available to comment. Trump was not the only Republican candidate to weigh in on the yuan, as Sen. Lindsay Graham of South Carolina called China’s actions “just the latest in a long history of cheating.” Other U.S. elected officials from both parties have criticized China’s moves as well.

The yuan has fallen 2.9 percent against the dollar over the last two days, 3.0 percent against the yen in the same period, and 1.6 percent against the Korean won, currencies of three of China’s largest trading partners. Markets worldwide have been roiled for the last two days since Beijing devalued its currency.

But the currency’s fall thus far only offsets some recent trade-weighted gains. Against the euro, for instance, the yuan has strengthened 5 percent in 2015. It is up more than 4 percent against the won, and nearly 13 percent against the Malaysian ringgit.

The yuan’s trade-weighted index is constructed as follows: 31.7 percent is weighted to emerging Asia — countries such as Malaysia and Indonesia -—18.5 percent to the United States, 17.4 percent to Japan and 16.2 percent to the eurozone. Other industrial countries, Central and Eastern Europe and Latin America make up the remaining 16 percent.

“So China has weakened more than 2 percent in the last two days, big deal, does that really take away Malaysia’s competitiveness?” said Chandler.

In fact, the dollar is one of the few spots where the yuan has failed to gain headway in 2015, sliding 3 percent. The dollar has strengthened against almost all currencies for most of 2014 and 2015 as investors factored in expectations of a Federal Reserve interest rate hike.

But in 2013, the yuan had gained 2.8 percent against the dollar, and in 2012, had risen 1 percent.

Still, if what is still a modest decline in the yuan turns into a full-blown slump, a “broader part of the political spectrum in the U.S. will voice concern,” wrote Jens Nordvig, global currency strategist at Nomura. Given that the change in China’s policy makes its currency more sensitive to market movements, the Obama administration may not react negatively initially.

“If we get 5 percent quickly, then Congress can turn quickly,” Nordvig told Reuters.

Late on Wednesday, the dollar was up 1 percent against the yuan at 6.3870.

Chandler urged market participants to wait and see how all this would play out. “It may not be that bad after all.”


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