China Devalues Yuan in Response to Tariff War: Trump Accuses 'Currency Manipulation'

China Hit by Tariff Bomb, Triggers Currency War

Counterattack with Yuan Devaluation Card

US Hits China with 104% Tariff 'Bombardment'

Yuan Value at 19-Month Low

Won-Dollar at Highest Since Financial Crisis

On the 9th, the US imposed an additional 104% tariff on China, prompting China to raise the yuan-dollar exchange rate to its highest level in 19 months. China countered the US's reciprocal tariffs with a yuan devaluation.

The People's Bank of China set the yuan-dollar exchange rate at 7.2066 yuan, up 0.04% from the previous day, marking the highest since September 2023. The bank raised the rate to the 7.2 yuan level for the first time since Donald Trump was elected in the US presidential election last November. China had previously managed to keep the yuan exchange rate below 7.2 yuan, but this was breached.

Analysts suggest that China's move to devalue the yuan is to support export companies inevitably hit by the US's high tariffs. The Trump administration enforced the announced country-specific reciprocal tariffs, imposing an 84% tariff on China. The US had also imposed additional tariffs of 10% on China in February and March. This raised the US's additional tariffs on China to 104%, making exports to the US virtually difficult. Lowering the yuan value can partially offset the tariff shock.

President Trump, at a National Republican Congressional Committee (NRCC) dinner in Washington DC before the reciprocal tariffs took effect, said, "China announced today that they are devaluing their currency," accusing them of "currency manipulation." He added, "That's why the '104% tariff on Chinese products' effective tonight (1:01 PM KST on the 9th) is valid until they negotiate."

As the US-China tariff war intensifies, the won value also plummeted. On the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,484.10 won, up 10.90 won from the previous day, marking the highest level in 16 years since the 2009 financial crisis.

Tariff War Escalates into Currency War... China Enters Long-Term Mode

China Breaks Psychological Barrier of '7.2 Yuan per Dollar'

The US-China tariff war is escalating into a currency war. China is countering the US's 104% additional tariff on Chinese imports by devaluing the yuan. President Donald Trump demanded China to negotiate, saying he was "waiting for a call from China," but China entered a long-term stance, stating that "a change in US attitude is needed."

◇'Currency Weapon' More Impactful than Export Control

As the People's Bank of China set the yuan-dollar exchange rate at 7.2066 yuan, up 0.04% (yuan value down) from the previous day, the foreign exchange market analyzed that "China has pulled out the currency counterattack card." The yuan value continues its devaluation streak for five consecutive trading days amid the US-China tariff war expansion.

The 7.2 yuan per dollar was considered a psychological barrier for Chinese authorities. The offshore yuan exchange rate hit a record high of 7.4290 yuan per dollar since the offshore yuan market was established in 2010, and the People's Bank of China continued to raise the official rate. Wall Street predicts that if the US and China fail to find a common ground, the yuan's devaluation speed will accelerate for the time being. Wells Fargo anticipates that the offshore yuan exchange rate could soar above 7.5 yuan per dollar. Wells Fargo forecasts a deliberate yuan devaluation of up to 15% over the next two months, while global investment bank Jefferies sees a potential for a significant yuan devaluation of up to 30% if China fully utilizes the currency weapon.

The Chinese government's tolerance of yuan devaluation is due to the growing need to offset the negative impact of the tariff war with the US. A lower yuan value reduces the export price of Chinese products. This can partially alleviate the US's tariff pressure on China. When the Trump administration imposed tariffs on China during its first term in 2018, the Chinese government devalued the yuan by more than 10%. President Trump's harsh criticism at the NRCC dinner event on the 8th (local time) that "China is manipulating its currency to offset the tariff impact" is also for this reason.

◇"China Aims for US Division"

Some analysts predict that China will gradually devalue the yuan to respond to the US's tariff bombardment. The Chinese government has already imposed a 34% retaliatory tariff on US products as a countermeasure. Although rare earth export restrictions were announced, the 'currency weapon' is a more sophisticated and impactful policy tool than any other response, according to the Financial Times.

Unlike other countries rushing to negotiate with the US, China is choosing a direct confrontation. Even on the 9th, when the additional 104% tariff was announced, China maintained a strong stance, stating, "If the US insists, we will definitely fight to the end."

According to a comprehensive analysis by the British weekly The Economist and Chinese local media, China believes that the backlash from US companies and citizens will work in its favor. The logic is that if President Trump's tariff hikes cause consumer prices and the business environment in the US to deteriorate, dissatisfaction within the US will reach its peak.

US imports from China include not only raw materials and intermediate goods but also a significant number of consumer goods such as clothing, household items, and toys. The Economist analyzes that "if tariffs raise the prices of these products, consumers will inevitably react sensitively." Experts predict that how well President Trump and Chinese President Xi Jinping withstand the economic damage and political repercussions of the tariff war will be key to the negotiations.

Beijing Correspondent: Kim Eun-jung / Washington Correspondent: Lee Sang-eun / Reporter: Lee Hye-in kej@hankyung.com