<p>For the first question, in order to buy US assets, China sells yuan and buys dollars, which it can then use to purchase US assets (typically Treasuries). That increases the supply of yuan/demand for dollars simultaneously, which drives down the value of the yuan relative  to the dollar.</p>
<p>For the second question, you're right, it does make buying Chinese goods cheaper for people in the US, so it's &quot;good&quot; for US consumers (in the sense that they have more options and buying power). But, at the same time, it makes goods/services produced in the US relatively more expensive in China, thereby decreasing demand for US-produced goods/services.</p>

CC BY-SA 4.0
2020-12-24T21:18:39.233Z
2020-12-24T21:18:39.233Z
Amaan M
<p>The article reflects a consensus view of the trade situation between US and China.  Personally I see it differently :  China has been willing to make and ship trillions of dollars’ worth of goods to US in return for entries in a computer (Treasury bonds).  This is undoubtedly good for US consumers, as you say.</p>

CC BY-SA 4.0
2020-12-24T22:56:58.050Z
2020-12-24T22:56:58.050Z
dm63
<p>The currency peg to the dollar would be strategic, for example, if China benefits from technology transfer and increased demand for domestic employment.</p>

CC BY-SA 4.0
2020-12-24T22:08:25.130Z
2020-12-24T22:08:25.130Z
SystemTheory
<p>In this article : <a href="https://www.epi.org/blog/trumps-china-tariff-confusion-it-wont-solve-chronic-trade-deficits/" rel="nofollow noreferrer">https://www.epi.org/blog/trumps-china-tariff-confusion-it-wont-solve-chronic-trade-deficits/</a> they claim that depreciating the value of the yuan to the USD bolstered China’s economy. The key excerpt is:</p>
<blockquote>
<p>For a long time, the fundamental cause of this growing trade chasm
with China was Beijing’s deliberate currency undervaluation. Between
2000 and 2013, China invested more than $4 trillion—nearly 40 percent
of its current GDP—in foreign currency assets, primarily U.S. Treasury
securities.</p>
<p>And it paid off, since it drove down the value of the Chinese yuan
relative to the U.S. dollar. This served as a massive subsidy for
Chinese exports and a tax on U.S. products shipped to China.</p>
</blockquote>
<p>My questions are:</p>
<p>(1) How does investing in US assets drive down the value of the yuan?</p>
<p>(2) If the value of the yuan to the USD diminishes, doesn’t that increase the purchasing power of US entities* for products in China e.g. A US citizen can purchase a house in China for less USD. So why is this deleterious for the US and beneficial for China?</p>
<p>*<em>not sure if that’s the correct word to use here. Please feel free to reword q</em></p>

<usa><china><tariffs><subsidies>
Why does lowering the value of yuan against the USD disadvantage the US and benefit China
piccolo
# Why does lowering the value of yuan against the USD disadvantage the US and benefit China

(Asked by: username_0 on 2020-12-24)

In this article : <https://www.epi.org/blog/trumps-china-tariff-confusion-it-wont-solve-chronic-trade-deficits/> they claim that depreciating the value of the yuan to the USD bolstered China’s economy. The key excerpt is:

> For a long time, the fundamental cause of this growing trade chasm
> with China was Beijing’s deliberate currency undervaluation. Between
> 2000 and 2013, China invested more than $4 trillion—nearly 40 percent
> of its current GDP—in foreign currency assets, primarily U.S. Treasury
> securities.
>
> And it paid off, since it drove down the value of the Chinese yuan
> relative to the U.S. dollar. This served as a massive subsidy for
> Chinese exports and a tax on U.S. products shipped to China.

My questions are:

(1) How does investing in US assets drive down the value of the yuan?

(2) If the value of the yuan to the USD diminishes, doesn’t that increase the purchasing power of US entities\* for products in China e.g. A US citizen can purchase a house in China for less USD. So why is this deleterious for the US and beneficial for China?

\**not sure if that’s the correct word to use here. Please feel free to reword q*

**Tags:** usa, china, tariffs, subsidies

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## 3 answers

### Answer by username_1 on 2020-12-24. Score: 1 | Accepted answer

For the first question, in order to buy US assets, China sells yuan and buys dollars, which it can then use to purchase US assets (typically Treasuries). That increases the supply of yuan/demand for dollars simultaneously, which drives down the value of the yuan relative to the dollar.

For the second question, you're right, it does make buying Chinese goods cheaper for people in the US, so it's "good" for US consumers (in the sense that they have more options and buying power). But, at the same time, it makes goods/services produced in the US relatively more expensive in China, thereby decreasing demand for US-produced goods/services.


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### Answer by username_2 on 2020-12-24. Score: 3

The article reflects a consensus view of the trade situation between US and China. Personally I see it differently : China has been willing to make and ship trillions of dollars’ worth of goods to US in return for entries in a computer (Treasury bonds). This is undoubtedly good for US consumers, as you say.


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### Answer by username_3 on 2020-12-24. Score: -1

The currency peg to the dollar would be strategic, for example, if China benefits from technology transfer and increased demand for domestic employment.


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