As Trade Risks Rise for Trump, Chinese Officials Consider a Weaker Yuan

High-level Chinese leaders and policymakers are contemplating allowing the yuan to weaken by 2025 while preparing for the possibility of higher trade tariffs under a second Donald Trump presidency in the United States.

According to sources familiar with the matter, this move reflects China's acknowledgment that it needs a larger economic stimulus to combat Trump's threat of steeper customs duties. Trump has indicated plans to impose a universal 10% import tariff and a 60% customs duty on imports from China. Allowing the yuan to depreciate could make Chinese exports cheaper, thereby mitigating the impact of these tariffs and creating looser monetary conditions within mainland China.

Sources noted that permitting the yuan to depreciate next year would signify a departure from the practice of maintaining a fixed exchange rate. The tightly managed yuan is allowed to move 2% on either side of a daily midpoint set by the central bank. Remarks from senior officials typically include commitments to keep the yuan stable.

According to a second informed source, while it is unlikely that the central bank will explicitly state that it will no longer defend the currency, it will underscore allowing the markets to have more influence over the yuan's value.