China’s top leaders and policymakers are reportedly considering allowing the yuan to weaken in 2025 as they prepare for the potential imposition of higher trade tariffs under a second Donald Trump presidency in the United States.
The proposed move underscores China’s acknowledgment of the need for stronger economic stimulus to counter the threat of increased tariffs, according to sources familiar with the discussions.
Trump has stated plans to implement a 10% universal import tariff and a 60% tariff specifically on Chinese imports to the U.S. Depreciating the yuan could make Chinese exports more competitive by lowering their cost and create more accommodative monetary conditions within China.
Reuters spoke with three individuals familiar with the discussions, who requested anonymity due to the sensitive nature of the topic. The People’s Bank of China (PBOC) and the State Council Information Office, which handles media inquiries for the government, did not immediately respond to requests for comment.
Allowing the yuan to weaken next year would mark a departure from China’s typical policy of maintaining a stable exchange rate, the sources noted. The yuan, which is tightly managed, is permitted to fluctuate 2% on either side of a daily midpoint set by the central bank. While top policymakers usually pledge to keep the yuan stable, the central bank may shift its emphasis toward granting markets more influence over the currency’s value, according to a second source.At a recent meeting of the Politburo, the Communist Party’s key decision-making body, China committed to adopting an “appropriately loose” monetary policy in 2025, marking its first policy easing of this nature in over 14 years.
Notably, the statement omitted any reference to maintaining a “basically stable yuan,” a phrase last mentioned in July but absent from the September and recent readouts.
Yuan policy has been a prominent topic in financial analysts’ reports and think tank discussions throughout the year. A recent paper by the China Finance 40 Forum Research Institute, a leading think tank, proposed that China temporarily shift the yuan’s anchor from the U.S. dollar to a basket of non-dollar currencies, such as the euro, to ensure greater exchange rate flexibility during trade tensions.
A third source familiar with the central bank’s considerations told Reuters that the People’s Bank of China (PBOC) has explored scenarios where the yuan could weaken to 7.5 per dollar to mitigate trade shocks. This would represent a roughly 3.5% depreciation from its current level of around 7.25.
During Donald Trump’s first presidency, the yuan depreciated by over 12% against the dollar between March 2018 and May 2020 amid escalating tariff disputes.
A weaker yuan could support China’s economy by helping it achieve a challenging 5% growth target for 2025, alleviating deflationary pressures, boosting export earnings, and increasing the cost of imported goods. Analysts, on average, predict the yuan will depreciate to 7.37 per dollar by the end of next year. Since late September, the currency has already declined nearly 4% against the dollar as investors position for a possible Trump return to the White House.The central bank has previously managed volatility and curbed disorderly movements in the yuan by directing state banks to buy or sell the currency.
