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Chinese Yuan Expected to Hit Record Lows Amid U.S. Tariff Threats

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China’s yuan is under increasing pressure, with major investment banks predicting that it could hit record lows by the end of 2025 due to escalating tariff threats from U.S. President-elect Donald Trump. These projections come as Trump reaffirmed his intention to impose substantial tariffs on Chinese imports, amplifying fears of further yuan depreciation.

Currency Forecasts and U.S. Tariffs

Investment firms forecast the offshore yuan to weaken to an average of 7.51 per U.S. dollar by late 2025. This would mark its weakest level on record, surpassing previous lows observed since data tracking began in 2004. Trump’s recent statement, posted on his social media platform, confirmed that he plans to impose an additional 10% tariff on all Chinese goods entering the U.S. This follows his earlier pledge for tariffs up to 60% during his campaign.

The yuan’s depreciation is expected to continue, with some analysts suggesting it could weaken to 8.42 per dollar if the full 60% tariff were to be enacted, reflecting the broad economic impact of such tariffs. Since the U.S. election, the yuan has already dropped over 2%, reaching a level of 7.2514 by Thursday.

Historical Context and Current Concerns

Under Trump’s first term in office, tariffs led to significant yuan depreciation—about 5% in 2018, with an additional 1.5% drop the following year. However, the scale of the current tariff threat and the existing trade imbalance between the U.S. and China have heightened uncertainty. Experts, like Ju Wang from BNP Paribas, point out that the situation now is much more volatile than during Trump’s first term, partly due to the perceived inconsistency in policy announcements from the incoming administration.

The PBOC’s Dilemma

The People’s Bank of China (PBOC) faces a delicate balancing act in maintaining yuan stability. On one hand, they aim to prevent excessive depreciation, which could trigger capital outflows and financial instability. On the other hand, raising interest rates to prop up the currency could harm economic growth, which is already struggling. The PBOC has set a daily reference rate for the yuan at 7.20 against the dollar this year, in an effort to maintain control.

Economists warn that a significant push past the 7.3 level could induce higher volatility, which the PBOC would want to avoid. However, given the economic challenges, there are concerns that the central bank may not want to take drastic actions that could further strain an already faltering economy.

Efforts to Stabilize the Yuan

Despite the challenges, there is hope that the PBOC’s stabilizing measures will help prevent a further drop. Wei Liang Chang from DBS Bank noted that the PBOC’s recent actions to keep key interest rates stable and maintain the yuan’s exchange rate at a manageable level could help stem the tide of depreciation. Additionally, the potential softening of U.S. interest rates under the incoming administration may provide some relief to the yuan.

 

Investors Weigh Potential Market Impact of a Republican “Red Sweep” After Trump Win

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Following Donald Trump’s recent election victory, investors are closely analyzing the potential effects of a “red sweep” scenario—where Republicans secure control of the White House and both chambers of Congress—on financial markets. With Republicans holding a slim lead for the House and many of Trump’s economic policies considered pro-growth, investors are speculating on how such unified government control could shape markets.

If Republicans secure the House, Trump’s policies, including tax cuts and regulatory rollbacks, would likely have an easier path to implementation. Market analysts expect these measures to favor small-cap stocks, boost the dollar, and potentially increase inflation. This anticipation has already pushed small-cap stocks like the Russell 2000 index up by about 8% this week. Although some of these gains have cooled, expectations remain strong for longer-term growth, assuming Republicans gain full control.

Trump’s platform prioritizes slashing federal regulations and preserving the 2017 tax cuts, with additional reductions to corporate and individual taxes under discussion. Goldman Sachs analysts project that a corporate tax cut from 21% to 15% could elevate S&P 500 earnings per share by around 4%. Deutsche Bank analysts also forecast increased growth, adjusting their 2025 U.S. growth estimate from 2.2% to between 2.5% and 2.75% in a red sweep scenario, although they anticipate a dip in 2026 due to potential trade tensions.

The prospect of Republican control could also strengthen the dollar, which recently hit a four-month high. JP Morgan analysts predict that a red sweep could further push the euro down to $1.00-$1.02 compared to its current value, as opposed to a smaller decline with a divided Congress. Historically, stock markets have performed well under unified Republican government control; Evercore ISI research indicates that the S&P 500 has averaged a 9.1% return during periods of single-party control, compared to 6.7% under divided government.

However, some experts caution that legislative changes could face hurdles even with a Republican majority due to narrow margins in both chambers. Paul Nolte, senior wealth advisor at Murphy & Sylvest, suggests that while markets are already pricing in some of Trump’s policies, the final legislative outcome may differ significantly from campaign promises.