Since Donald Trump’s victory in the US Presidential Elections, the Chinese yuan has been trading below the central bank’s official fixing rate, signalling market expectations of a weaker currency as the US administration prepares to take a harder stance and possibly launch new trade wars, the Asia Times reported on Monday.
While this might seem like a reasonable assumption, People’s Bank of China Governor Gongsheng and, for now, President Xi Jinping, have strong reasons to prevent a sharp depreciation of the currency, according to the report.
The primary concern is maintaining investor confidence. A significant drop in the yuan could send a negative signal to global investors, suggesting deeper problems in China’s economy, which is already grappling with a severe property crisis, worsening deflation, and large-scale capital outflows.
However, the real uncertainty lies in how Donald Trump’s anticipated trade policies might push China to reconsider its approach to currency management, potentially triggering a deliberate devaluation of the yuan, as reported by the Asia Times.
Earlier, a report by CNN stated that Trump’s re-election is expected to bring aggressive trade policies, including tariffs as high as 60 per cent on Chinese goods, potentially disrupting global supply chains and impacting China’s economic growth.
With new technology restrictions and Trump’s expected hard-line stance on Beijing, the superpowers’ already fragile relationship may face further strain.
But while Trump’s protectionist trade stance and transactional approach to foreign policy could put significant pressure on China, it may also lead to opportunities for Beijing. As Trump’s stance threatens US alliances and global leadership, Beijing sees potential to fill the vacuum left by an “America First” approach and to assert a new global order less reliant on the US, reported CNN.
“Trump’s return to power will certainly bring greater opportunities and greater risks for China,” said Shen Dingli, a foreign policy analyst based in Shanghai. “Whether it eventually leads to more risks or more opportunities depends on how the two sides interact with each other.”
Officially, China’s response has remained neutral. In a statement, the Foreign Ministry said on Wednesday it “respected” the American electoral outcome, while Chinese President Xi Jinping congratulated Trump on Thursday. Trump has often praised Xi, calling him “a very good friend,” despite the marked downturn in US-China relations during his first term.