Amid Donald Trump's tariff offensive, China lets yuan slide to 19-month low

The onshore yuan fell to its weakest level since September 2023 as Beijing signals policy shift to support exporters and counter US trade pressure

China’s tightly controlled currency fell to its weakest level in 19 months on Tuesday, as Beijing allowed the renminbi, also known as the Chinese yuan to slip further amid escalating trade tensions with the United States. The move signals a calibrated shift in China’s currency policy, aimed at shielding exporters from the impact of rising tariffs, even as it raises concerns over capital flight and financial stability.

 

The onshore yuan touched 7.34 to the US dollar, its lowest since September 2023, while the more freely traded offshore Yuan hovered around 7.352. Earlier in the day, the People’s Bank of China (PBOC) set the official reference rate — the midpoint around which the currency is allowed to move within a 2 per cent band — at 7.2038 per $. This marked the first time since September 2023 that the yuan was officially fixed beyond the psychologically significant 7.2 level.

 

Why is the Chinese yuan sliding?

  The depreciation follows fresh threats from US President Donald Trump to impose an additional 50 per cent tariff on Chinese goods if Beijing proceeds with its retaliatory measures. China’s Ministry of Commerce denounced the threat as “another mistake” and vowed to fight “to the end,” further intensifying the trade standoff.

 

For months, the PBOC resisted allowing the Yuan to weaken past 7.2, prioritising currency stability. But Tuesday’s move suggests a possible policy shift. Analysts now see the central bank allowing more flexibility in the exchange rate to absorb external shocks. Still, a sharp depreciation remains unlikely due to the risk of capital outflows — a concern that continues to shadow Beijing’s monetary decisions.

 

Will devaluation work as a buffer against Trump’s tariffs?

  A weaker yuan offers a tactical advantage in the trade war. It lowers the price of Chinese goods in dollar terms, making exports more competitive and helping to offset the impact of US tariffs. With Chinese shipments to the US under pressure, a cheaper currency may allow exporters to retain market share by boosting demand in other regions and easing some pressure on profit margins.

 

While devaluation may help exporters take the edge off tariffs, a significant drop could trigger competitive devaluations globally, analysts caution.

 

The broader strategic calculus is delicate. Allowing the Yuan to weaken offers short-term relief for exporters and the domestic economy. But it could also provoke anger in Washington, where accusations of currency manipulation are never far from the surface.

 

Risks of a weaker yuan for China 

The trade-off facing Beijing is complex. On one side, a weaker yuan may offer much-needed support to an export-driven economy grappling with slowing growth. On the other, it raises the risk of financial instability through higher import costs, potential inflation, and accelerated capital flight.

 

Moreover, sharp depreciation could provoke further retaliation from trading partners, deepening China’s economic isolation. For now, Beijing appears committed to a middle path — modest currency adjustment, selective market intervention, and close monitoring of external risks, according to a Reuters report.