Editorial: When China Sneezes
The purpose of the devaluation is to lower the price of Chinese exports to increase the amount of foreign currency coming in
SPANISH VERSION
Not long ago, it used to be said that when the U.S. economy sneezes, the rest of the world’s economies catch a cold. In the 21st century, it is China who has that power over international markets and national economies due to its size, its exports and the demand for its products. The impact of the crisis will result in an invasion of Chinese products at cheaper prices, a drop in value for the products it imports and more difficulties for those who want to sell their foreign items to the gigantic mass of Chinese consumers.
A drop in internal consumption, a lower-than-projected production by its factories, and the deflated bubble of its stock exchange are just a few of the serious problems the Asian nation is trying to solve by devaluing its currency. The measure has brought the yuan to its weakest period since September 2012 and represents the lowest drop since it was devalued in 1994.
The purpose of the devaluation is to lower the price of Chinese exports to increase the amount of foreign currency coming in. This means that chiles exported to Mexico will be cheaper at the Latin American country than the ones produced there, displacing the local product.
In the same manner, it is harder for a currency with less buying power to purchase foreign products, so China would import less. This drop in demand knocks down international prices set for the minerals China buys from Brazil, as well as Argentinean soy and crude oil. The magnitude of Chinese demand impacts markets by hitting the economies whose stability has come to depend on selling to that country. It also signifies a reduction in Chinese investments in Latin America and Africa, among other foreign markets.
For the U.S., the devaluation may mean an economic war, since China did the opposite of what Washington has been asking them to do for years. A reduction in exports to China will cost jobs in the U.S., as stocks for companies exporting to Beijing dropped on Wall Street.
Globalization chains the world’s economies together. Governments are increasingly dependent on foreign factors out of their control. China’s crisis is a wake-up call for this new reality.
