US retailers are renegotiating with their Chinese suppliers to take advantage of lower manufacturing costs after China devalued the yuan. Earlier this month, China devalued its tightly controlled currency in an effort to boost growth and help flagging exports. The nearly two per cent cut will make imports from China cheaper. The Chinese currency is down 3.2 per cent versus the dollar so far this year.

Cheaper yuan gives retailers a chance to buy more with dollars, with a knock-on effect in other supplier nations eager to remain competitive. After China’s move, Vietnam devalued its currency by one per cent. Most US retailers have dollar-denominated annual contracts with provisions that allow them to renegotiate if the currency moves outside a pre-established range. Some retailers will reap benefits immediately by exercising those clauses while others expect to enter next year’s contracts with a stronger bargaining position.

Mexico, one of the largest trading partners of the US which rivals China in the global sourcing game, stands to benefit substantially more than others from the Chinese devaluation. Because the Mexican peso is down more than the yuan, buyers are more likely to start sourcing more from Mexico. Peso has depreciated 12.5 per cent so far this year. The Canadian dollar has fallen 12.1 per cent while the euro has slipped seven per cent year-to-date against the dollar.