The strange worry over China devaluing the Yuan

People do, often enough, worry about some strange things. For example, that China might react to Trump's tariffs by reducing the value of the yuan:

Beijing's threat to fight fire with fire in its escalating trade spat with Washington had one crucial problem. 

After Donald Trump warned that the White House was lining up a further $100bn of tariffs on Chinese products, Beijing ran out of US imports to ramp up taxes on. 

Some $550bn of products emblazoned with the Made in China stamp flooded into the States last year. 

A mere $130bn made the journey across the Pacific to the Asian powerhouse. Beijing would have to go back to the drawing board. 

A currency war — the use of monetary policy to devalue a currency to gain an advantage in international trade by making exports cheaper, also known as competitive devaluation  — is one method for Beijing to even the odds in a trade skirmish between the world’s two largest economies.

Analysts believe that Beijing is mulling a devaluation of the Chinese yuan as a hidden weapon in its trade war arsenal. 

It's not a very hidden weapon given that the price of the yuan is posted in millions of places and updated by the minute or second. But the complaint is also rather to miss what happens.

A devaluation of the yuan is something which undoes some of the damage being caused by those tariffs. That's what's being complained about in a sense of course. But then undoing that damage does, well, it undoes that damage. China's products would be more expensive in the US, US domestic production will be more expensive, as a result of the tariffs. A fall in the value of the yuan makes both cheaper again to the benefit of the American consumer. 

We, we few, who are rational about trade like this.

But the misunderstanding here is deeper than that. To the extent that the tariffs alter China's external trade those same tariffs will lower the value of the yuan. That's just the way it all works. Just as it did with the £ and Brexit of course. That British exports might have to vault the EU tariff barriers led to a fall in sterling. That fall neatly, and not at all by coincidence, compensating for the price differences that would be caused by those tariffs. That's just how these things work.

Thus, if we assume that Trump's tariffs will have an effect upon China's trade then one of those effects is going to be that the yuan falls against the dollar. Yet it's a fall of the yuan against the dollar which is being complained about here.

Yes, the complaint is about what will happen because of the tariffs. Go figure, eh?