When US President Donald Trump fired the opening salvoes of his country’s trade war with China in his first term, Beijing’s currency was on the front lines.
By 2019, the yuan had tumbled past the benchmark value of seven per US dollar for the first time in over a decade, rattling investors and fuelling speculation that Beijing was allowing depreciation to mitigate the effects of tariffs.
As Washington and Beijing began to lock horns once again, with Trump’s second White House foray bringing with it a “trade war 2.0”, these concerns resurfaced. Yet this time feels different, as the yuan has largely held steady against the US dollar, even strengthening on several occasions.
Unlike the roughly 14.5 per cent weakening against the US dollar it underwent from April 2018 to September 2019, the yuan has so far withstood depreciation pressures.
“I think it’s indeed fair to say that the yuan has become stronger in global markets compared to 10 years ago … as a result of a number of reforms that have made the yuan more market-driven and the Chinese capital account more open,” said Francoise Huang, senior economist for Asia-Pacific at Allianz Trade.
While the yuan has not moved the same way it did during the first iteration of the trade war, she added, “the global and US policy environments are very different this time around.”
Despite a brief dip in early April – when Trump unveiled sweeping “reciprocal tariffs” against nearly every US trading partner – the Chinese currency quickly rebounded and has since trended stronger, with the offshore yuan gaining about 3 per cent against the US dollar this year so far.
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