China's persistent currency undervaluation, particularly the renminbi, is warping the world economy and driving significant global trade imbalances, a problem French President Emmanuel Macron highlighted for the Group of Seven meeting in Évian. Since 2018, China's overall trade surplus has tripled, fueled by a weakened renminbi following its 2021 property bubble collapse and ongoing state bank interventions.
This undervaluation makes Chinese exports cheaper and foreign goods more expensive, creating an artificial competitive edge. U.S. tariffs have been circumvented as China reroutes intermediate goods through neighboring countries, compelling them to also keep their currencies weak. This "second China shock" significantly impacts European industries, yet the G-7 and IMF have largely avoided direct currency diplomacy. The G-7 must present Beijing with a choice: allow currency appreciation or face new trade restrictions, as current policies are unsustainable.
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