RE: Tariffs8 Apr 2025 10:11
China has a history of managing, its currency, especially during periods of trade tension such as response to U.S. tariffs.
This happens when a country intentionally influences its exchange rate to gain a trade advantage, usually to make its exports cheaper. They use Buying/selling foreign currencies, mostly $, through its central bank, the People’s Bank of China.
China doesn't float its currency freely like the U.S. does. Instead, it uses a managed float system. Every day, the PBOC sets a "reference rate", called the daily fix, for the yuan, and allows it to trade in a narrow band (~±2%). If needed, they step in with buy/sell operations or capital controls.
In August 2019, during Trump’s trade war, China let the yuan weaken past 7 per dollar, which was seen as a political signal. The US Treasury officially labelled China a currency manipulator for the first time since 1994, The label was later dropped.
China is more cautious now. The yuan is under pressure due to slowing growth and capital outflows. The PBOC often props it up, not weakens it, to avoid panic or investor flight. Yes, they still adjust it as a lever to stabilize exports when needed, especially when tariffs rise.
China has historically manipulated its currency—especially during tariff battles—to cushion export pain. But today, it’s more about managing volatility than open manipulation. Still, they absolutely use it as a strategic tool when needed.
When the USofA imposes tariffs on Chinese goods, they become more expensive in dollar terms. But if China lets the yuan fall, it can offset the cost of those tariffs by making Chinese goods cheaper again. So Tariffs adds +25% to a Chinese product, Yuan depreciates by -10% then U.S. buyers feel only a 15% net price increase.
DYOR
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