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Comment by joshuafkon | Hacker News Reader

Well, currently (more or less) the devaluation just offsets the new tariffs that have been imposed. So in real terms there wouldn’t be a huge change.

Absent the tariffs it would depend on the specific supply and demand for the good. I suspect both the manufacturer and the customer would split the value in some way.

Interestingly, the growth to the economy arises through how the devaluation impacts the savings and consumption rate for the countries in question. Weakening the yuan depresses Chinese household consumption and subsidies foreign household consumption. It is this change in national savings and consumption that drives the trade balance.

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Why does weakening the yuan depress Chinese household consumption? Aren't households buying Chinese goods with yuan, and therefore a weakening currency shouldn't matter? Or is it that they have less purchasing power for foreign goods and this effects household consumption?

Presumably a lot of domestic Chinese goods require materials from abroad to produce. Remember that until a few years ago China had to import the tips for ballpoint pens.

A household has a fixed amount of yuan. More expensive foreign goods take up a larger portion of that amount, leaving less for domestic consumption. Imagine every household does it, leading to less demand for domestic goods.

Alternatively, households stop buying expensive foreign goods and substitute cheaper but potentially inferior domestic goods (eg. baby formula that may be laced with melamine). So domestic manufacturers can still win, even if households don't.

I’m under the impression - perhaps incorrectly - that a big portion of foreign goods are related to mobile phone services purchased from overseas vendors. It’s possible some of this can’t be substituted...but I don’t know what percentage of spending this represents.

That sounds unlikely, given that Google's Play Store is blocked in China and everybody uses local stores instead.

That's if the foreign goods are substitutible.

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