Currency Manipulation: what it is and what it means for consumers/ producers

Amidst the US trade war with China, this topic peaks the interest of producers and consumers alike.

To start off, who wins and who loses when a country like China artificially devalues their currency (makes it weaker relative to the dollar)? On the one hand, it certainly makes China's exporters more competitive on the global market, as well as providing goods at a cheaper price to US consumers. However, currency manipulation concurrently hurts Chinese consumers by decreasing their purchasing power and hurts producers/ exporters in competing nations as well.

Many would argue that artificially weakening currency puts an unfair competitive pressure on producers in other nations, which inevitably provokes protectionist policies in retaliation. Most governments oppose currency manipulation by their trading partners, and yet, East Asian countries have kept their exchanges rates artificially depreciated to encourage exports.

A 2019 article from the NYT writes that:

"A cheaper renminbi would harm American exporters and erode the effectiveness of Mr. Trump’s tariffs. It would also hurt exporters in Europe, Japan and elsewhere. And it could create market pressures for South Korea, Taiwan and others that compete in similar industries to devalue their currencies, potentially disrupting trade and investment flows. Mr. Trump could also use the label to justify further actions on China, including perhaps higher tariffs."

I fully agree that cheaper reminbi could launch the two countries into a cycle of harmful economic policies to counteract the negative effects of the other one. As such, the negative sentiments caused by China's currency manipulation has undoubtedly fueled the trade war and Trump's tariffs on imported goods. However, if this trend continues, it could have bigger implications for the world economy. Cheaper renminbi would harm American exporters and erode the effectiveness of tariffs, since as the Chinese currency falls, it might push for higher tariffs which could hurt everyone involved.

Aside from tariffs and the trade war, the pro-business decision to artifically manipulate currencies poses additional externalities. As a country weakens their currencies, consumers in those countries consequently become worse off from weakened purchasing power; this monetary policy thus poses a clear tradeoff between different interest groups in the country.