China’s Yuan Hits 17-Year Low Amid Escalating Trade Tensions with the US

The Chinese yuan plunged to its lowest level against the US dollar in 17 years on Thursday, marking a significant development in the ongoing trade friction between China and the United States. The central bank of China lowered its daily reference rate for the sixth consecutive session, a move that reflects the intensifying trade war between the two economic giants.

A depreciated Yuan could help mitigate the economic effects of US tariffs by making Chinese exports more affordable.

This sharp decline in the yuan’s value follows a series of retaliatory tariffs imposed by China on US imports, mirroring the tariffs introduced by the US. Although US President Donald Trump recently announced a temporary suspension of duties on goods from numerous countries, the tariffs on Chinese goods were increased, further straining trade relations.

China’s Retaliatory Measures

In response to the escalating trade conflict, China has vowed to take “resolute and forceful” countermeasures. The country has made it clear that it will not tolerate any actions that threaten its sovereignty, security, or development interests. Chinese Foreign Ministry spokesperson Lin Jian criticized the US for using tariffs as a tool of coercion, labeling the move as "bullying and hegemonic."

Despite Trump’s recent suspension of some tariffs, those targeting Chinese goods remain in place, with China confirming its intention to retaliate robustly.

Economic Implications of a Weaker Yuan

The depreciation of the yuan may help mitigate the economic impact of the US tariffs by making Chinese exports cheaper and more competitive. However, experts caution that prolonged declines in the currency's value could trigger capital outflows and threaten financial stability within China.

To curb excessive depreciation, reports suggest that China’s central bank has instructed major state-owned lenders to limit their dollar purchases. This is a move designed to stabilize the yuan and prevent further weakening that could destabilize the broader economy.

Market Reactions and Currency Levels

The onshore yuan fell to 7.3518 per dollar in early trading on Thursday, its lowest level since December 2007. This marks a decline of about 1.2% so far this month. Meanwhile, the offshore yuan dropped to 7.3592 against the dollar, following a previous record low of 7.4288 on Tuesday.

The People’s Bank of China (PBOC) set the midpoint for the yuan at 7.2092 on Thursday, the weakest since September 2023, which has further fueled concerns about the long-term trajectory of the currency. The gradual depreciation orchestrated by the PBOC has contributed to the yuan's ongoing decline, making it a key focal point for global financial markets.

Global Attention on the Yuan's Performance

As the US and China engage in a game of economic brinkmanship, the yuan’s performance is drawing significant attention from foreign exchange markets. According to ING’s global head of markets, Chris Turner, the situation is a "powerplay game of brinkmanship," with the USD/CNY exchange rate being a central issue in the ongoing economic standoff.

Until a formal agreement or high-level bilateral meeting between the US and China takes place, the yuan’s fluctuations will remain under close scrutiny by market observers.