The Yuan dipped to a 17-year low against the U.S. dollar early on Thursday after President Donald Trump excluded Beijing from his 90-day pause on reciprocal tariffs and cranked up his tariff on Chinese goods imports to 125 percent.
Why It Matters
The Chinese economy is heavily reliant on exports, so a weaker yuan could help cushion the impact of Trump’s tariff hike by making Chinese goods more competitive outside of the U.S. market.
However, with imports also playing a significant role in China’s economy—which is already slowing down—a depreciating currency could drive up prices for foreign goods, adding pressure to domestic consumers and manufacturers alike.
What To Know
The dollar strengthened sharply after Trump announced his pause, which sent stock markets surging again after deep losses in recent days over fears his tariffs would lead to a trade war that triggers a recession in the U.S. and elsewhere.
Trump said China would not be included because of “the lack of respect that China has shown to the World’s Markets” and that his tariff hike on Chinese goods was “effective immediately.”
“At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable,” Trump posted on his Truth Social platform on Wednesday.
World Bank data shows China imported $3.1 trillion in goods and services in 2023, accounting for around 17.5 percent of its GDP.
Trump is turning the screw on Beijing. He could use trade negotiations with others to apply even more pressure if he makes dropping U.S. tariffs conditional on America’s trading partners curbing their dealings with China.
JADE GAO/AFP via Getty Images
The tariff hike rattled markets and spurred immediate retaliation from Beijing. Financial indexes around the globe swung sharply, with U.S. markets rebounding in recent days on hopes that easing tensions with non-China trading partners could offer some stability.
The U.S. stock market initially surged following Trump’s broader tariff freeze announcement.
The S&P 500 gained 5.6 percent, the Nasdaq jumped more than 8 percent, and the Dow Jones Industrial Average spiked over 2,000 points as investors welcomed temporary clarity in global trade relations.
However, markets remain volatile. Oil prices swung dramatically, first falling to four-year lows before partially recovering, reflecting investor uncertainty over how China-U.S. tensions might affect global demand.
White House officials, including Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent, told trade partners not to retaliate against the U.S. and they will be rewarded.
The administration’s rationale for toughening even further on China appeared to focus on what it sees as Beijing’s refusal to engage meaningfully in negotiations. “China has chosen the opposite direction,” Lutnick said.
What People Are Saying
Cato Institute vice president of general economics Scott Lincicome told CNN: “Markets are relieved a bit, but I don’t know how you could possibly think the U.S. is a sound, safe and stable place to invest when the president is flipping tariffs on and off like a light switch and there could be more of these things in a mere 90 days. So a bit of a reprieve, but we’re definitely not out of the woods.”
Billionaire hedge fund manager and Trump ally Bill Ackman praised the strategy, posting on X, formerly Twitter: “I was one of the first and certainly one of the loudest to raise concerns about the tariffs. I also believe in giving credit when credit is due. The outcome of the Donald Trump strategy was highly favorable. I focus on the outcome, not on how the sausage is made.
“China is now isolated and our other trading partners are lining up to make deals. They have all, albeit briefly, viscerally experienced the impact on their markets and countries of the tariffs taking effect. And that is highly motivational for them and their citizenry.”
Trade expert Henry Gao, a professor at Singapore Management University, told Newsweek on Wednesday: “Trump appears to be taking a more coercive approach—using tariffs to pressure other countries into siding with the U.S. This could succeed to some extent, but it risks fragmenting the global economy into rival blocs. In a worst-case scenario, it could even provoke China into escalating tensions, including a possible invasion of Taiwan or other neighbors.”
The Chinese Ministry of Commerce said in a statement: “If the U.S. insists on further escalating its economic and trade restrictions, China has the firm will and abundant means to take necessary countermeasures and fight to the end.”
What’s Next
According to Bessent, bespoke tariff agreements could take months to finalize, as the administration aims to transition from sweeping duties to tailored deals with individual trade partners.
The 10-percent baseline tariff will remain in effect for most nations, and China’s 125-percent rate is expected to persist for the foreseeable future.
In response, Beijing has already imposed business restrictions on nearly a dozen American firms and filed a fresh challenge to U.S. tariffs at the World Trade Organization.
With no signs of thaw between Washington and Beijing, and new retaliatory steps underway, the trade conflict appears poised to intensify in the months ahead.
