The People’s Bank of China (PBOC) set the midpoint of the yuan’s trading band against the US dollar at 7.198 on April 7, marking a surprise move that defies expectations of a 1.8% decline. The decision suggests Beijing’s long-term strategic calculus is coming into focus as it navigates its trade relationship with the US and the rest of the world.
Analysts had predicted a weaker yuan in response to President Donald Trump’s tariff war, but the PBOC opted for a minor adjustment instead. This move can be seen as a calculated attempt to avoid massive movements in the currency when there is no urgent reason to do so.
Beijing may have announced retaliatory tariffs on US imports in response to Trump’s hike of equal measure, but American tariffs do not come into effect until April 9, and China’s retaliatory levies will land the day after. This window of time allows for negotiations between the two countries.
Ray Dalio, founder of Bridgewater Associates, suggests that China may strengthen the renminbi against the dollar “in exchange for some trade relief.” However, Chinese officials view this approach as flawed, given its history of currency appreciation deals leading to Japan’s economic malaise. Instead, Beijing prioritizes a stable and strong yuan in the long term to support its global financial ambitions.
The renminbi is only down 0.2% against the dollar year-to-date, despite US levies being 20 percentage points higher since Trump entered the White House. However, once tariffs hit, expect a gradual, controlled decline that aims to avoid runaway depreciation and large capital outflows.
Beijing also seeks to limit the downward impact on peer currencies as it negotiates with its Asian neighbors to establish a functioning network of trading partners in a post-tariff world. The PBOC’s floor for this slow fall is around 13% below current levels, short of 8.2765 yuan per dollar, where the dollar currency peg was before China’s foreign exchange regime liberalized in 2005.
The central bank cannot fully halt depreciation but can likely slow it enough to give Beijing time to consider its options.
Source: https://www.reuters.com/breakingviews/yuan-is-strategic-barometer-china-post-tariffs-2025-04-07