Yuan Plummets to 17-Year Low as US-China Trade Tensions Escalate

The Chinese yuan has plunged to its weakest level since December 2007, closing at 7.3498 per dollar in domestic trading on Wednesday. This significant depreciation comes amid heightened trade tensions between the world's two largest economies, sending ripples through global currency markets.

New US Tariffs Trigger Currency Movement

The dramatic slide in China's currency coincides with the implementation of President Donald Trump's "reciprocal" tariffs, which took effect on Wednesday. These new measures include substantial duties of 104% on various Chinese imports, marking a significant escalation in the ongoing trade dispute.

The offshore yuan experienced even more volatility, dropping to a record low of 7.4288 overnight before recovering to 7.3769 per dollar during Asian trading hours—representing a rebound of approximately 0.7% after a decline of over 1% in the previous session.

China's Response to Market Pressures

In response to growing economic concerns, top Chinese officials are reportedly planning to convene as early as Wednesday to formulate measures aimed at:

• Stabilizing the domestic economy
• Calming increasingly volatile capital markets
• Managing currency depreciation in a controlled manner

Despite mounting pressure from tariffs, China's central bank appears reluctant to permit a sharp depreciation of the yuan. Sources indicate that the People's Bank of China (PBOC) has instructed major state-owned banks to reduce their purchases of U.S. dollars, signaling an effort to support the currency.

Economic Impact Analysis

According to Capital Economics, "Unless they are rolled back, the latest U.S. tariff hikes mean that China's shipments to the U.S. will more than halve over the coming years, even assuming the renminbi weakens to 8 to the dollar."

The economic research firm further projects that this trade conflict could potentially reduce China's GDP by 1.0-1.5%, depending on how successfully exports can be rerouted through other countries. While significant, analysts expect this economic impact to be partially offset by expanded fiscal support measures from Beijing.

Central Bank's Defensive Position

On Wednesday, the People's Bank of China set the yuan's midpoint rate—the reference point for onshore trading within a 2% band—at 7.2066 per U.S. dollar. This marks the weakest level since September 11, 2023, and allows the yuan to weaken to as low as 7.3507, just marginally above the 7.3510 low reached in September 2023.

Early Wednesday morning, Chinese state-owned banks actively intervened in the onshore spot market, selling U.S. dollars in a coordinated effort to slow the yuan's depreciation. Despite these interventions, both the onshore and offshore yuan have declined by over 1% this month, reflecting ongoing concerns about the impact of escalating tariffs.

Political Dimensions of Currency Movements

The currency situation has not escaped political commentary. On Tuesday, former President Trump accused China of deliberately devaluing its currency to counteract the effects of tariffs—a claim that adds another layer of complexity to the already tense economic relationship.

Economic experts note that while a moderately weaker yuan could help boost Chinese export competitiveness and provide some relief to economic pressures, a steep or uncontrolled decline might trigger substantial capital outflows and pose serious risks to financial stability.

Safe-Haven Assets Benefit

As trade tensions escalate, traditional safe-haven assets are seeing increased demand. Gold prices have jumped significantly as investors seek security amid the uncertainty caused by the deteriorating US-China economic relationship.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

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Markets Surge as Trump Announces 90-Day Tariff Pause, Raises China Duties to 125%

Markets Surge as Trump Announces 90-Day Tariff Pause, Increases China Duties to 125%

Global financial markets staged a dramatic recovery on Thursday as US President Donald Trump announced a 90-day pause on tariffs for most countries amid intense international pressure. The selective relief, which notably excludes China, triggered a powerful rally across global stock markets after days of severe turbulence.

Selective Tariff Relief Sparks Market Rebound

In a significant policy shift, President Trump has temporarily suspended the implementation of recently announced tariffs for a 90-day period. This pause applies to most trading partners but specifically excludes China, against which Trump has instead increased tariff rates to 125% from the previously announced 104%.

The announcement marks a partial retreat from the sweeping tariff policies that had sent markets into a tailspin over the past week. Analysts suggest the move may be in response to the severe market reaction and mounting pressure from various sectors of the US economy as well as international allies.

Asian Markets Lead Global Recovery

Asian markets responded with extraordinary gains in Thursday trading:

• Japan's benchmark Nikkei 225 index surged by 8%
• South Korea's Kospi index jumped more than 5%
• Australia's ASX 200 rallied by 5% during early hours of trading

These sharp rebounds follow days of precipitous declines that had erased trillions in market value across global equities. Trading floors that had been gripped by panic earlier in the week witnessed a dramatic shift in sentiment as investors rushed to buy assets at what many now view as discounted valuations.

US Markets Stage Historic Rally

The relief extended to US markets, which staged one of their most powerful rallies in recent memory on Wednesday. As of early morning IST:

• The Dow Jones Industrial Average soared 2,962.97 points, or 7.87%, to 40,608.56
• The Nasdaq Composite skyrocketed 1,867.06 points, or 12.16%, to 17,124.97
• The S&P 500 surged 474.93 points, or 9.53%, to 5,456.20

These percentage gains rank among the largest single-day advances in the history of these indices, highlighting the magnitude of the market's reaction to the policy adjustment.

China Trade War Intensifies Despite Broader Relief

While most countries received temporary reprieve, the trade conflict between the US and China has escalated to unprecedented levels. After Trump increased tariffs on Chinese goods to 125%, Beijing announced it would implement "countermeasures" and impose 84% tariffs on US goods.

Chinese officials stated they would not bow to what they described as "tax blackmail" by the US administration. This hardening stance from both sides suggests that the world's two largest economies remain on a collision course despite the broader de-escalation with other trading partners.

President Trump has consistently accused foreign countries, particularly China, of levying harsh duties on American products and "plundering" the US economy. These accusations form the foundation of his trade policy, which aims to reduce trade deficits and protect American industries.

Market Volatility Expected to Continue

Despite the strong rally, financial analysts caution that market volatility is likely to persist as investors continue to assess the economic implications of Trump's trade policies. The 90-day pause creates a temporary window of relief but also introduces a new deadline that could trigger renewed market anxiety as it approaches.

"Huge swings have become routine for financial markets worldwide recently, not just day to day but hour to hour, as investors struggle to game out what Trump's trade war will do to the economy," noted market observers.

The selective nature of the policy—providing relief to some trading partners while escalating tensions with China—creates a complex global trade landscape that investors will need time to fully understand and price into assets.

Outlook for Investors

For investors, several key considerations emerge from these developments:

• The 90-day window provides a temporary period of stability for most global trade relationships
• Companies with significant exposure to China face increased uncertainty and potential supply chain disruptions
• Sectors heavily dependent on US-China trade flows may require reassessment
• Market sentiment appears highly responsive to trade policy announcements, suggesting further volatility ahead

While the immediate market reaction has been strongly positive, many strategists emphasize that the underlying trade tensions—particularly between the US and China—remain unresolved. This suggests that investors should prepare for a period of elevated market sensitivity to policy pronouncements and trade developments.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

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