ifo Institute: Germany and Europe Benefit from Devaluation of the Yuan

“A devaluation of the yuan would have a limited impact on Germany,” says ifo researcher Martin Braml. “We would certainly benefit from cheaper Chinese products, but at the same time China would earn less from its exports, leaving it less money with which to purchase German goods. A devalued yuan makes goods from Germany and elsewhere more expensive for China, thus lowering demand for German exports.”
A 10 percent devaluation of the yuan would benefit the rest of the EU economy (without Germany) to the tune of EUR 1.94 billion; a 20 percent devaluation would push that up to EUR 2.82 billion. The rest of the world (without the United States) would gain EUR 5.68 billion and 6.51 billion, respectively.

A weaker yuan would similarly benefit the US. “US losses due to the trade war with China would be lessened by a devaluation of the yuan,” says Marina Steininger, co-author of the study. “If the yuan devalued by 10 percent, the US economy would lose just EUR 397 million; if it devalued by 20 percent, the US could actually turn its loss of income into a gain of EUR 476 million.”

The outcome for China would be negative. Given the trade war and a 10 percent devaluation, the country would lose EUR 29.27 billion; a 20 percent devaluation would drive that up to EUR 33.79 billion.