Intensifying U.S.-China Tariff War: Yuan Depreciation in Motion as Exchange Rate Hits Record Low

TradingKey - In response to the U.S. administration’s new tariff policy, China has adopted a markedly different stance from that of Japan and South Korea, which are currently engaged in compromise negotiations. Beijing has vowed full retaliation against the tariffs. In addition to imposing counter-tariffs, the People's Bank of China (PBOC) appears to be pursuing an orderly depreciation of the yuan, having lowered the currency’s central parity rate of the yuan against the U.S. dollar for five consecutive trading days.

On Wednesday, April 9, the PBOC set the yuan’s central parity rate at 7.2066 per dollar, down 28 basis points from the previous day. At the time of writing, the onshore USD/CNY exchange rate stood at 7.3498—its highest level since the 2008 financial crisis. Meanwhile, the offshore USD/CNH rate hit 7.3811, with the offshore yuan reaching a record low on Tuesday.

Analysts suggest that the depreciation reflects China’s attempt to cushion the economic blow of Trump’s tariffs. The steep tariffs on Chinese goods will raise the cost of exports to the U.S., reduce their competitiveness, and weigh on China’s export-driven growth. A weaker yuan could help offset some of these adverse effects.

  President Donald Trump recently threatened to impose an additional 50% tariff on Chinese imports, potentially pushing the cumulative tariff rate to 104%—far higher than those applied to other U.S. trading partners. While dozens of countries are negotiating "customized agreements" with the U.S., Trump has indicated that he believes China will eventually follow suit.

So far, however, China has shown no inclination to enter negotiations. The Ministry of Commerce has reiterated its commitment to taking countermeasures and emphasized that China is prepared to “fight to the end”.

While currency depreciation can theoretically boost exports, it also carries significant risks, including diminished investor confidence in Chinese assets and broader financial instability. As such, markets are increasingly speculating that China may eventually pursue talks to stabilize the situation.

Analysts at Maybank believe the yuan may experience moderate depreciation as China enters a potential phase of negotiation or escalation.ANZ Bank echoed that view, noting that the Chinese government appears determined to manage the pace of depreciation.