This is especially the case at a time when domestic policy efforts are being made to rein in China's massive credit and housing market bubbles and as the Chinese economy gets hit by an increase in U.S. import tariffs. .





As China's credit and housing market bubbles burst, the Chinese economy must be expected to weaken markedly. This would seem to be particularly the case considering that the Chinese credit bubble over the past eight years has been far larger than that which the United States experienced in the run up to its 2007-2008 housing bust.





In those circumstances, the last thing that the Chinese economy needs is to be hit by yet another shock in the form of increased U.S. trade protection.





A second reason to think that the Chinese authorities will allow their currency to depreciate against the dollar is that if they did not do so, their currency would appreciate along with the U.S. dollar against the currencies of all of its other trade partners.

This is especially the case at a time that the expansive budget policy of the Trump administration at this late stage in the U.S. economic cycle is putting strong upward pressure on both U.S. interest rates and on the U.S. dollar.





The reason to fear that additional Chinese currency depreciation will lead China and the U.S. further down the road to a full-blown currency and trade war is that China and the U.S. will have different views as to future Chinese currency depreciation.



