Economically speaking, you understand, by lowering the value of the Yuan against the USD:
“The wait is over for those wondering how Beijing would respond to Trump’s recent tariff announcement,” BMO said. “The result: the yuan was allowed to depreciate well beyond 7.0.”
Krueger called China’s retaliation “massive,” adding that “on a scale of 1-10, it’s an 11.” He cited the Chinese government calling on state buyers to halt U.S. agricultural purchases, while there’s “increased anecdotal evidence that the Chinese government is tightening its overview of foreign firms.”
“While there were measures that could have been chosen with larger direct effects on supply chains, the announcements from Beijing represent a direct shot at the White House and seem designed for maximum political impact,” Krueger said. “ We expect a quick (and possibly intemperate) response from the White House, and consequently expect a more rapid escalation of trade tensions.”
This doesn’t matter to the real economy. The US economy will only benefit from a reduction of trade with China. But it does matter quite a bit to the financial economy, hence all of the sturm und drang and falling stock markets.
It’s interesting that they resorted to this so quickly. It appears things are a little shakier over there than everyone except Nate suspected.