According to CNBC, Chinese authorities are grappling with the issue of offshore yuan depreciation, with major global investment firms predicting that the yuan will depreciate to a historical low. It is expected that Trump will immediately implement tariff sanctions after taking office next year, further intensifying pressure on the People's Bank of China.
Comprehensive forecasts from thirteen investment banks and research institutions predict that by the end of 2025, the exchange rate of the US dollar to the Chinese yuan will reach at least 1:7.51 (USD: CNY).
Trump revealed in a post on his social media platform Truth Social that he will impose an additional 10% 'tariff' on all Chinese goods entering the United States.
Trump posted: 'I have negotiated multiple times with China regarding the massive shipment of drugs (especially fentanyl) to the US, but with no results. Chinese representatives told me they would impose the highest penalties, including the death penalty, on drug traffickers, but unfortunately, they have never enforced it. Drugs are flooding into the US from Mexico like never before, and we will impose an additional 10% tariff on many products from China entering the US.'
During his campaign, Trump promised voters that he would impose tariffs of 60% or higher on Chinese goods. 60% plus 10% equals 70%, and Trump will impose strong sanctions on China with a high tariff.
Jonas Goltermann, an economist at Capital Economics, pointed out that under similar conditions, tariff sanctions would lead to an appreciation of the US dollar, while currencies of economies closely tied to the US through trade would face the greatest depreciation pressure.
Mitul Kotecha, head of Asian foreign exchange and emerging market macro strategy at Barclays, further amplified the forecast, stating that if tariffs exceeding 60% are imposed on all Chinese goods, the USD to CNY exchange rate could depreciate to 1:8.42, with the current exchange rate at 1:7.25 (USD: CNY).
Reuters previously reported that in 2018, during Trump's presidency in the United States, the first round of tariffs on Chinese goods led to a depreciation of the yuan by about 5%. As trade tensions escalated, the yuan depreciated again by 1.5% the following year.
Wang Ju, head of foreign exchange and interest rate strategy for Greater China at BNP Paribas, stated that considering the scale of the tariff threat and the degree of trade imbalance between China and the US, the current economic uncertainty is far greater than during Trump's previous tenure as president.
He added that if there is a clear lack of consistency in the new US government's policy statements, it will further exacerbate uncertainty, and it is expected that the People's Bank of China will take counter-cyclical measures to prevent excessive depreciation of the yuan.
Cedric Chehab, chief economist at BMI, stated that the yuan's exchange rate against the US dollar is close to the 7.3 USD level that authorities have been trying to defend. If it breaks this threshold, it will increase volatility in China's financial markets, which the People's Bank of China hopes to avoid.
Chehab also pointed out that the challenge is that the People's Bank of China may be reluctant to raise interest rates to curb the depreciation of the yuan, as this would further increase economic pressure.
This year, the People's Bank of China has limited the daily reference exchange rate to 7.20 USD to maintain the onshore yuan value. Chinese authorities are facing the tough challenge of protecting the yuan from depreciation while also getting the Chinese economy back on track. A significant depreciation of the yuan would exacerbate capital outflows and have a stronger impact on China's financial markets.
This article predicts that Trump's tariff sanctions will cause the offshore yuan to depreciate to a historic low, first appearing in Chain News ABMedia.