After Trumps Tariff Threat, Is a China Currency War Next?

Beijing has a powerful tool for responding to President-elect Donald J.Trump’s threatened new tariffs on Chinese goods: It could start a currency war, a step that poses formidable risks for China as well as the United States.Letting China’s currency, the renminbi, lose value against the dollar would be a tried and true answer to tariffs.

A cheaper renminbi would make Chinese exports less expensive for overseas buyers, mitigating the harm to China’s competitiveness from Mr.Trump’s tariffs.

Beijing did just that in 2018 and 2019, when Mr.Trump imposed tariffs in his first term.A cheaper renminbi could partially or entirely offset the effects of the extra 10 percent tariff on Chinese goods that Mr.

Trump said on Monday he would order on his first day in office.He also said he would slap a 25 percent tariff on goods from Canada and Mexico, while demanding that they, along with China, halt flows of drugs to the United States.A strategic devaluation of China’s currency, which is tightly controlled by the country’s central bank, could allow Beijing to supercharge its powerful export machine.

China’s overall volume of exports to all destinations already surged nearly 12 percent in the first nine months of this year versus last year.China is poised for further gains, as its banks step up lending to build new factories.But allowing China’s currency to fall could endanger the country’s economy.

Confronting a weaker renminbi, Chinese companies and affluent families might rush to shift money out of the country instead of investing at home.A weaker exchange rate for the renminbi against the dollar could also hurt the Chinese public’s confidence, undermine consumer spending and erode share prices.It could also work at cross purposes to recent efforts by policymakers to shore up the economy, which has been slammed by a housing market collapse that has erased much of the savings of China’s middle class.We are having trouble retrieving the article content....