Jai Hamid
The yuan is falling behind. China’s dream of turning its currency into a global contender is unraveling thanks to President Donald Trump’s return to power.
With a brand new trade war looking likely, China’s yuan is staring at a long, hard road. Analysts say the currency could hit its lowest point in 17 years by 2025, and bets against it are piling up fast.
Trump’s proposed tariffs on Chinese goods — as high as 60% — are spooking the markets. The yuan is showing cracks that didn’t even exist during the last trade war.
Chinese bond yields lag far behind US rates, foreign companies are pulling their money out, and the economy is on shaky ground. Throw in deflation risks, and you’ve got a recipe for disaster.
The yuan’s value sinks as markets react to Trump
It’s getting ugly. The onshore yuan hit 7.248 on November 14, which was its weakest level in three months. Offshore trading wasn’t any better, with the yuan hovering around 7.237.
Predictions from BNP Paribas say things could get worse, with the dollar-yuan exchange rate stabilizing at 7.5 if Trump follows through with his tariff plans. UBS forecasts a rate between 7.6 and 7.7 next year, while Societe Generale expects it to hit 7.4 in the second quarter of 2025.
And that’s not even the worst-case scenario. Jefferies Financial Group is calling for daily yuan fixings at around 8 per dollar by 2025. The last time the yuan was in that range, George W. Bush was still in office, and China’s economy wasn’t even the size of Germany’s.
What’s driving this? According to economists from Absolute Strategy Research, “Downward pressure will only intensify. The People’s Bank of China (PBOC) might have to let the yuan weaken further to protect exports.”
A weaker yuan could give Chinese goods an edge in global markets, especially if Trump’s tariffs hit hard. But the risks are massive. Devaluing the currency too quickly could trigger a capital exodus, shrink China’s foreign reserves, and escalate tensions with the US.
History isn’t on China’s side here. In 2015, the PBOC devalued the yuan by 1.9% overnight, which triggered chaos. Foreign reserves took a hit, and Trump slapped the “currency manipulator” label on Beijing. If the PBOC tries something similar now, it might worsen China’s debt issues and create an even bigger disaster with the US.
PBOC’s tug-of-war with market forces
The PBOC is using every tool in its box to slow the yuan’s fall. Over three days in mid-November, the central bank set the yuan’s reference rate stronger than expected, a clear sign it’s uncomfortable with the currency’s decline. At the same time, state-owned banks stepped in, dumping dollars onshore to stabilize the market.
Offshore, the PBOC is playing a different game. Traders are speculating that state-owned banks might tighten the supply of yuan to make it harder for investors to bet against the currency. This kind of liquidity squeeze is a favorite tactic to keep bearish traders in check.
But China’s economic policies are also under pressure. The PBOC rolled out a domestic stimulus plan in September, and other government agencies followed with their own measures.
The goal here is reportedly to shield the economy from Trump’s looming tariffs. Whether it works or not is still up in the air, but Beijing clearly isn’t giving up without a fight.
One ironic twist here is Trump’s stance on the dollar. He’s long advocated for a weaker dollar, which could actually help the yuan in the short term. A weaker dollar makes US goods cheaper, but it also gives China some breathing room to stabilize its currency.
Wall Street though, isn’t convinced Trump can pull it off, given the complexities of global markets.
Yuan’s international aspirations take a backseat
For years, China has pushed the yuan as a global alternative to the dollar. President Xi Jinping wanted the currency to play a central role in international trade, reducing China’s reliance on the greenback.
Analysts from ING Bank warn of the dangers of abandoning stability. “The worst-case scenario would be Beijing giving up on currency stability altogether,” they said. “That would signal a shift from long-term goals to short-term survival, which is short-sighted and ineffective.”
In other words, if China sacrifices the yuan’s global ambitions for quick fixes, it risks losing everything it’s worked for. Adding to the chaos, Goldman Sachs expects Trump’s tariff hikes to hit early in his new term.
Since Trump’s win, the yuan has already dropped 1.7% against the dollar. Goldman sees it hitting 7.4 in three months and 7.5 within a year.
During his campaign, Trump called tariffs “the most beautiful word in the dictionary.” His hardline stance has put China on notice. Xi, though, has called for peace and collaboration.
