<story><title>Why Did China Just Devalue the Yuan? How Trade Works with Free-Floating Currency</title><url>https://www.cassandracapital.net/post/why-did-china-just-devalue-the-yuan</url></story><parent_chain><item><author>cletus</author><text>This is one of the few articles on HN that I read the whole way through. Good job whoever wrote it.&lt;p&gt;The interesting thing here is that the case is made that China can (and does) manipulate its currency and that devaluing one&amp;#x27;s currency is what has led to the shift of manufacturing jobs from the developed world to China (and other places) but it also notes that this suppression of currency value is becoming increasingly difficult.&lt;p&gt;Doesn&amp;#x27;t this support the argument that currency manipulation is ultimately time limited?&lt;p&gt;On a side note, I always like to point people to this [1] on the subject of free trade, specifically the conflation between free trade and free movement of capital.&lt;p&gt;[1] &lt;a href=&quot;http:&amp;#x2F;&amp;#x2F;economixcomix.com&amp;#x2F;home&amp;#x2F;tpp&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;economixcomix.com&amp;#x2F;home&amp;#x2F;tpp&amp;#x2F;&lt;/a&gt;</text></item></parent_chain><comment><author>simonh</author><text>&amp;gt;...China can (and does) manipulate its currency and that devaluing one&amp;#x27;s currency is what has led to the shift of manufacturing jobs from the developed world to China...&lt;p&gt;That&amp;#x27;s not what the article says, it only really addresses recent events. The main reason goods manufactured in China have historically been cheap is that Chinese labour and land is very inexpensive in absolute terms. They had huge amounts of land that was under-utilised and hundreds of millions of rural people with little or no economically valuable work to do, with very low standards of living. That&amp;#x27;s the basic source of China&amp;#x27;s manufacturing cost advantage.&lt;p&gt;It&amp;#x27;s also not true that China has consistently devalued their currency, they have frequently acted to prop up it&amp;#x27;s value especially since the financial crisis. Before 2007 the Yuan was much weaker, at over 8 to the dollar. The recent slide in the Yuan was a result of the latest tariffs. China didn&amp;#x27;t act to devalue it, they simply stopped acting to prop it up.&lt;p&gt;So overall yes, a relatively weak yuan has served China well, but much of that weakness is due to structural economic reasons. Labour and land was cheap due to low labour and land utilisation. Labour was also cheap due to very minimal standards of living. Manufacturing capacity was cheap due to enormous economies of scale. Those aren&amp;#x27;t a recipe leading to a naturally strong currency.</text></comment>
<story><title>Why Did China Just Devalue the Yuan? How Trade Works with Free-Floating Currency</title><url>https://www.cassandracapital.net/post/why-did-china-just-devalue-the-yuan</url></story><parent_chain><item><author>cletus</author><text>This is one of the few articles on HN that I read the whole way through. Good job whoever wrote it.&lt;p&gt;The interesting thing here is that the case is made that China can (and does) manipulate its currency and that devaluing one&amp;#x27;s currency is what has led to the shift of manufacturing jobs from the developed world to China (and other places) but it also notes that this suppression of currency value is becoming increasingly difficult.&lt;p&gt;Doesn&amp;#x27;t this support the argument that currency manipulation is ultimately time limited?&lt;p&gt;On a side note, I always like to point people to this [1] on the subject of free trade, specifically the conflation between free trade and free movement of capital.&lt;p&gt;[1] &lt;a href=&quot;http:&amp;#x2F;&amp;#x2F;economixcomix.com&amp;#x2F;home&amp;#x2F;tpp&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;economixcomix.com&amp;#x2F;home&amp;#x2F;tpp&amp;#x2F;&lt;/a&gt;</text></item></parent_chain><comment><author>joshuafkon</author><text>Thank you so much - I’m so glad you enjoyed it!&lt;p&gt;If you’re interested in this topic I highly recommend “The Great Rebalancing” by Micheal Pettis. A really good book that looks at how currency manipulation and other factors have created imbalance in the global economy.&lt;p&gt;I’ve also written a book which touches on this - but focuses more on the massive sovereign debt burdens that have been created in large part though these trade imbalances - particularly in an aging world.&lt;p&gt;&lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.cassandracapital.net&amp;#x2F;books&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.cassandracapital.net&amp;#x2F;books&lt;/a&gt;</text></comment>