The U.S. dollar has been trading in a narrow range over the past week, as public attention was diverted to stock market volatility.

Meanwhile, the Chinese Yuan (CNY) quietly touched a 10-year low. China's GDP growth rate has slowed down to its lowest pace in a decade and its stock market continues to slide. While Chinese officials are saying they will not use currencies as a weapon in the trade wars, there are few signs that China is blocking the further slide of the CNY.

Take a look at the dollar-to-yuan exchange rate since April, when trade wars heated up:

USD_vs_CNY_11.1.18

The intensified trade tensions between the U.S. and China have invited various opinions about whether the conflict is helping or hurting the United States.

In the short-run, the 10 percent tariffs on $200 billion of Chinese imports imposed in September have directly resulted in higher import prices and a risk of inflation for U.S. consumers.

Additionally, given the prolonged uncertainty of trade talks, American corporations have recently announced that they will seek to use supply chains outside of China. This certainly presents more potential disruption to the U.S. economy, as it will take years to establish solid relationships with new supply chain partners.

China's strategy has been to use the American corporate criticism of the trade wars to cause division between the U.S. business community and the White House, hoping that they may water down some of President Trump's most austere trade policies.

Keep in mind, however, that globalism and free trade only work if two countries are trading on a level playing field, and there is a conception that China is not playing fair. We are now starting to see voices from other parts of the world amplify this concern, as both Germany and Brazil have recently complained about certain Chinese practices. The new United States-Mexico-Canada agreement also shows that Mexico and Canada are on board with the concept of free and fair trade.

Attempts to rectify U.S.-China trade imbalances may cause short-term pains, but there will certainly be long-term gains for the US economy.

Our View: The perception of unfair Chinese trade practices may of course be prompted by misunderstandings. Perhaps China could change its image by doing a better job in advocating and executing cases that improper and unfair practices in China have been rightfully and severely punished.

Meanwhile, on the U.S. side, it is important that we project a unified and coherent message from the White House and the business community about the need for fairer trade, which will improve our collective negotiating strength.

Ultimately, the Chinese economy still needs foreign capital inflows, which currently are continuing to deteriorate. It seems this trend of gradual CNY weakness may continue for the next couple of months.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447 4133.

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