Chinese policymakers are contemplating a weaker yuan in 2025 as they anticipate the economic impact of a potential second term for former President Donald Trump and the risk of higher tariffs on Chinese imports, Reuters reports.
According to multiple sources familiar with the discussions, top officials in China are recognizing the need for increased economic stimulus, particularly in response to Trump’s pledge to impose a 10% universal import tariff and a 60% tariff specifically on Chinese goods. Sources, who spoke anonymously, explained that a weaker yuan could help mitigate the impact of these tariffs by making Chinese exports more affordable and addressing the deflationary pressures within the economy.
A weaker yuan, while not a policy move China has officially endorsed, could be a strategic response to trade tensions. In 2018, during a previous round of Sino-US trade disputes, the yuan depreciated sharply. This time, allowing the currency to fall further would provide economic flexibility, giving the People’s Bank of China (PBOC) more room to adjust monetary policy.
Under the current system, the yuan is tightly managed, with a daily trading band of 2% on either side of a fixed midpoint set by the PBOC. However, discussions suggest that China may let market forces play a larger role in determining the yuan’s value moving forward. This shift would mark a departure from its usual emphasis on currency stability.
At a recent Politburo meeting, Chinese leaders emphasized adopting an “appropriately loose” monetary policy for 2025, marking the first easing of its policy stance in 14 years. Notably, the commitment to a “stable yuan” that has been part of previous policy statements was not mentioned, signaling potential flexibility in currency management.
As China works towards an ambitious 5% growth target next year, the depreciation of the yuan could serve multiple purposes: boosting export earnings, helping to offset the effects of tariffs, and easing deflationary pressures by making imports more expensive. Some analysts predict the yuan could drop to 7.37 per US dollar by the end of 2025, a 3.5% decline from its current level of approximately 7.25.
The possibility of a weaker yuan is already being factored into market expectations, with the currency having lost nearly 4% of its value against the dollar since September. In the past, China’s central bank has intervened to stabilize the yuan when necessary, using state-owned banks to buy or sell the currency.
