Stocks plummeted because of China's dramatic currency move

Not quiet on the Eastern front... Governments worldwide let the free market determine how much a dollar, peso, real, or pound is worth through supply and demand. Europe buying some fancy American corn? They'll have to sell euros and buy dollars first. That's why those airport currency exchange boards are constantly changing. But China's government does the opposite — it dictates how much yuan each $ is worth. Then this happened Monday:

• What China did: The government is weakening its currency so that your $1 now buys a whopping 7 yuan — the weakest level the currency has hit in over a decade.
• What the US did: It called out China — the Treasury Department labeled China a "currency manipulator," a naughty list the country hasn't been on since 1994.

Currency manipulation = Tariff kryptonite... China just opened up a whole new front in the trade war because this move neutralizes US tariffs. It's an intense escalation, but it's classic trade war tit-for-tat-for-tit-for-tat. Here's why it went down:

• Last week, the trade deal talks in Shanghai didn't end well.
• The US pledged a 10% tariff on the remaining $300B in Chinese goods not yet tariffed (mainly consumer goods you use, like toys and tech stuff).
• Since tariffs are like taxes, that would make the Chinese-produced iPhone X 10% more expensive to Americans.
• So by weakening the value of its currency compared to the US dollar, China offsets part of the tariff's impact.