Tags: China | Yuan | devaluation | US economy

China's Yuan Devaluation May Hurt US Exports, Companies

China's Yuan Devaluation May Hurt US Exports, Companies

By    |   Thursday, 13 August 2015 05:57 AM

The yuan has dropped nearly 3 percent against the dollar since China implemented its devaluation earlier this week, and the move could hurt the United States in several ways.

First, it will likely put a damper on our exports to China, because a weaker yuan makes U.S. products more expensive for the Chinese in yuan terms.

U.S. exports to China totaled $120 billion last year, making it our third-largest export market after Canada and Mexico.

To be sure, that's not a very large amount compared to our total GDP of $17.8 trillion.

Of course, it is individual companies' exports that will get hit. And the revenue they earn in China will be worth less when converted to dollars. Among U.S. companies that may suffer are Apple, Yum Brands and Johnson & Johnson, The Wall Street Journal reports.

Greater China accounts for 27 percent of Apple's iPhone sales. And in terms of Apple's spending in China, it pays its contractors in dollars, so the yuan's drop won't help it there.

Yum, which owns KFC and Pizza Hut, generates 50 percent of its sales in China, and Johnson & Johnson calls China one of its most significant markets.

The dollar stood at 6.3858 renminbi late Wednesday, up from the pre-devaluation level of 6.2097 renminbi Friday. By midday on Thursday, the yuan was down 2.9 percent since Tuesday's surprise announcement of a more flexible exchange rate. The People's Bank of China said the change was aimed at making the tightly controlled yuan more market-oriented.

Ironically enough, it can be argued that the devaluation represents a move in the direction of free markets. China's economic growth has slowed to a six-year low of 7 percent, according to official Chinese data. But many economists say that number is vastly overstated. Some say the true figure is 3 to 4 percent.

And weakening economic growth for a country often leads to a weaker currency, as global investors view the country's investments as less appealing.

In announcing the devaluation, Chinese officials said they want to let market forces play more of a role in determining the yuan's value.

And if they're truly committed to that idea, the currency could fall a lot further, experts say.

“If they really do it, it [the yuan] may be going down and down and down,” Diana Choyleva, chief economist at Lombard Street Research, told The New York Times.

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The yuan has dropped 2.8 percent against the dollar since China implemented its devaluation Monday, and the move could hurt the United States in several ways.
China, Yuan, devaluation, US economy
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2015-57-13
Thursday, 13 August 2015 05:57 AM
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