Chinese yuan slides to weakest in 11 years on escalating US-China trade tensions

China’s currency fell to the weakest point in more than 11 years on Monday amid the escalating trade tensions between the Chinese country and the United States (US).

The onshore yuan eased to the weakest point since early 2008, at 7.1425 late Monday morning. The offshore yuan meanwhile, which is less controlled and more market driven than the onshore yuan, was at around 7.1586 to the US dollar at around 3.30pm Singapore time, IG data showed.

On Friday, China’s Finance Ministry announced new tariffs of between 5% and 10% on US$75 billion worth of goods from the US, in a retaliation to the earlier 10% of tariffs on US$300 billion worth of Chinese goods.

China’s Finance Ministry also reinstated 25% of tariffs on US automobiles and auto parts. The tariffs were initially suspended after the leaders of both countries met in Argentina last year.

US president Donald Trump has ordered US firms to ‘immediately start looking for an alternative to China’. The president’s top aides subsequently downplayed the “order”. ‘I think what he was saying is that he is ordering companies to start looking,’ said US treasury secretary Steven Mnuchin.

On Monday, the People’s Bank of China set the limit rate of the yuan at 7.057 to the US dollar, which is weaker than in recent weeks. The Chinese government limits the yuan movement against the dollar to a 2% range on both ends daily to control volatility and reflect market trends.

A depreciation of the yuan makes Chinese exports cheaper, which provides some relief to buyers from the US tariffs.

‘The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs,’ Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank told Bloomberg news.

Earlier in August, the yuan spiked through the 7.0 threshold against the US dollar, days after the US said it would impose a new round of tariffs on Chinese imports from September 1.

Politicians in the US have long blamed China for keeping its currency artificially low to increase the competitiveness of its manufacturers. This month, US president Donald Trump accused Beijing of weakening the yuan to ‘steal (from) businesses and factories (in the US)’.