China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025, anticipating higher U.S. trade tariffs as Donald Trump returns to the White House. The contemplated move reflects China’s need for a larger economic stimulus to counter Trump’s threats of punitive trade measures, according to sources familiar with the matter. Trump has announced plans to impose a “10% universal import tariff” and a “60% tariff on Chinese imports into the United States.”
Allowing the yuan to depreciate could make Chinese exports cheaper, mitigating the impact of tariffs and creating looser monetary settings in mainland China. This strategy is not new; China has a history of competitive devaluation to offset tariff impacts. In 2019, the U.S. Department of the Treasury labeled the country a “currency manipulator.”
Financial News, the PBOC’s (People’s Bank of China) publication, released an article stating that the foundation for a “basically stable” yuan exchange rate remains “solid,” and the yuan is likely to stabilize and strengthen towards the end of this year. Allowing the yuan to depreciate next year would deviate from the usual practice of maintaining a stable foreign exchange rate, according to the sources.
While the central bank is unlikely to state it will no longer uphold the currency, it will emphasize giving markets more power in deciding the yuan’s value, one source said.
During Trump’s first term, the yuan weakened more than 12% against the dollar amid tit-for-tat tariff announcements between March 2018 and May 2020. A weaker yuan could help China’s economy achieve its challenging 5% growth target and relieve deflationary pressures by boosting export earnings and making imported goods more expensive.
“To be fair, it is a policy option. Currency adjustments are on the table as a tool to mitigate the effects of tariffs,” said economist Fred Neumann. However, he cautioned that aggressive currency devaluation could lead to a “tariff cascade” as other nations impose import restrictions on Chinese goods in response.
Analysts forecast the yuan to fall to 7.37 per dollar by the end of next year, though much depends on the extent and speed of Trump’s tariff increases. The currency has lost nearly 4% of its value against the dollar since the end of September as investors prepare for a Trump presidency.
