Currency manipulation can lead to trade tensions from "summary" of International Money and Finance by Michael Melvin
Currency manipulation involves a country intentionally devaluing its currency to gain a competitive advantage in international trade. This can lead to trade tensions between countries as other nations may view this practice as unfair and harmful to their own domestic industries. When a country devalues its currency, its exports become cheaper for foreign buyers, while imports become more expensive for domestic consumers. This can result in a trade imbalance, with the manipulating country exporting more than it imports. Trade tensions can arise when countries feel that their domestic industries are being negatively affected by currency manipulation. For example, if a country's exports become less competitive due to the devaluation of another country's currency, it may lead to job losses and decreased profits for domestic producers. This can create pressure on the government to take action to protect domestic industries, such as imposing trade barriers or tariffs on imports from the manipulating country. Currency manipulation can also lead to a "beggar-thy-neighbor" scenario, where one country's gain is another country's loss. In this situation, countries may engage in retaliatory actions, such as devaluing their own currencies or imposing tariffs on each other's goods. This can escalate into a trade war, where countries impose increasingly restrictive measures on each other, leading to a decline in international trade and economic growth.- Currency manipulation can create a cycle of retaliatory actions and trade tensions between countries. It can undermine the principles of free and fair trade, leading to increased protectionism and barriers to international commerce. This can have negative consequences for global economic stability and growth, as countries become more focused on protecting their own interests rather than working together to promote mutual prosperity.
