Trump Effect: Yuan Continues Free Fall as Tariff Threats Grow

Trump Effect: Yuan Continues Free Fall as Tariff Threats Grow

The Chinese yuan has plummeted to its lowest level in 15 months, reflecting the escalating impact of President-elect Donald Trump’s tariff threats against nations with contentious relations with the U.S.

Trump's Tariff Threats Push Chinese Yuan to 15-Month Low

President-elect Donald Trump’s victory is already reshaping international markets and currency rates. His recent announcement of a potential 10% tariff on all Chinese imports—citing concerns about narcotics like fentanyl entering U.S. borders—has sent the Chinese yuan spiraling downward.

Both the onshore and offshore yuan have reached their lowest levels in 15 months, a clear sign that markets are taking Trump's statements seriously. On Tuesday, the People’s Bank of China (PBOC) set the yuan’s midpoint rate at 7.1996 per dollar, underlining the currency’s recent struggles.

The yuan now ranks among Asia’s weakest-performing currencies. Analysts warn that further declines could spark a surge in dollar purchases by Asian investors seeking a hedge against additional depreciation. Khoon Goh, Head of Asia Research at ANZ Bank, noted:

“It’s crucial for the 7.20 fixing level to hold. Any higher would trigger immediate dollar buying.”

Economic Impact on China

This currency slide, coupled with other economic challenges, has set the Chinese economy back, causing bond yields and the national currency to dip to pre-stimulus levels. While initial government measures showed promise, investors are now waiting for bolder steps to drive a sustained market recovery.

The broader implications of Trump’s tariff threats remain uncertain. Historically, Trump has used such threats as a negotiating tool to compel cooperation in sensitive areas such as immigration and drug trafficking with neighboring countries like Mexico and Canada. Whether this latest warning results in concrete action remains to be seen.