Yuan Gains as Trump Dials Back Tariff Threats

The yuan advanced alongside assets sensitive to China’s economy, amid signs that President Donald Trump is dialing back threats of slapping higher tariffs on exports there.

Author of the article:

Bloomberg News

Tian Chen and Betty Hou

Published Jan 23, 2025  •  2 minute read

One-hundred yuan banknotes arranged in Shanghai, China, on Tuesday, Jan. 7, 2025. China maintained a tight grip on the yuan with its daily reference rate, as an overnight rally in the dollar threatened to derail sentiment toward the managed currency and its Asian peers. Photographer: Raul Ariano/Bloomberg Photo by Raul Ariano /Bloomberg

(Bloomberg) — The yuan advanced alongside assets sensitive to China’s economy, amid signs that President Donald Trump is dialing back threats of slapping higher tariffs on exports there. 

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The Chinese currency rallied to the strongest in six weeks in both onshore and overseas trading, after Trump said in an interview with Fox News that he would rather not have to use tariffs against the world’s second-largest economy. The Australian and New Zealand dollars both gained more than 0.5%, while benchmark Treasury yields edged lower.

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In the equity market, the Hang Seng China Enterprises Index jumped more than 2%.

Since Trump’s inauguration investors have mostly focused what he did on trade and less on what he said, cautiously optimistic after his first days did not bring the sweeping new levies he’d promised in his campaign. The dollar has weakened with the yuan higher as traders concluded a floated 10% tariff on Chinese exports was a far cry from the 60% previously mentioned.

WTO Chief Says Don’t ‘Hyperventilate’ Over Trump Tariff Threats

“Trump continues to take a softer approach with China at this point after issuing the executive order to delay the ban on TikTok and suggesting a mere 10% tariff earlier this week,” said Fiona Lim, a senior strategist at Malayan Banking Bhd. “Markets are likely to reduce bets on tariffs right now.”

Trump’s softer tone is good news for the People’s Bank of China, which has been digging deeper in its policy toolkit this month to put a floor on the falling yuan. Just this month, it deployed stronger-than-expected daily reference rates, tweaked some capital controls and engineered a liquidity squeeze to deter bears. 

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Still, some warn that the market will be volatile given unpredictability in Trump’s policies. He said earlier this week that the US may enact 25% tariffs on Mexico and Canada in February, right after he sidestepped offering details on the scope of new tariffs he has threatened at the inauguration address.

And Chinese assets remain under pressure due to fears over a prolonged economic slowdown and a yawning interest-rate discount to the US. Traders have grown increasingly disappointed at Beijing’s piecemeal stimulus efforts and the MSCI China Index entered a bear market this month. 

“President Trump’s recent softer stance on China may be a strategic move ahead of gradually more aggressive actions in the future,” said Wei Li, a head of multi-asset investments at BNP Paribas Securities (China). “While his rhetoric suggests easing tensions, the threat of significant tariffs remains.”

The yuan advanced about 0.4% to trade just under 7.26 per dollar in both domestic and offshore trading. A Bloomberg gauge of dollar fell 0.3%. 

For Alvin Tan, strategist at RBC Capital Markets, markets will remain volatile because any US-China negotiations may not lead to success.

“It’s still very early days, and Trump is mercurial, but it does increasingly appear that US trade policy on China is on the negotiating table,” he said.

—With assistance from Iris Ouyang and Abhishek Vishnoi.

(Adds comment. A previous version corrected the direction of Treasury yields)

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