Why Did China Just Devalue the Yuan? How Trade Works with Free-Floating Currency
Great article. I worked at a Forex trading firm and this is a great way to explain China's dilemma.Really, this is kind of what happened to every other east Asian economy the past 60 years. They grow at a rapid pace for about two decades, then hit a ceiling as their low currency value becomes a hindrance rather than a benefit.Like the author explains, this is the Japanese model. And every country who has copied it as done so less effectively than the Japanese.First Japan, then Korea, then Taiwan, now China.For me, the fundamental advantage in this trade war with the US is that the Chinese are replaceable for the American economy. Sure, there will be some pains as companies move their factories from China to Vietnam (or wherever), but ultimately, there are other places in the world with cheap labor.There is no other America in the world. China's number one customer is America and China doesn't seem to realize this. If you don't keep your relationship good with your number one customer, then you will lose them eventually.And that's what's happening.The Chinese have to get better at international relations or they will be more isolated as time goes on.No one wants to deal with a partner who bullies them around. Especially when there are better deals on the table.