China could devalue yuan to spite Trump – JP Morgan

Beijing’s potential move is a likely response to US tariff hikes, analysts believe

An anticipated shift in trade policy during Donald Trump’s second term as US president, including a drastic hike in tariffs on Chinese products, could see the yuan depreciate by up to 15%, according to JPMorgan Chase, as cited by Bloomberg.

In a note dubbed “Bracing for a storm” seen by the outlet, the analysts projected US import taxes on Chinese goods to be raised to 60% from the current 20% level, with fresh levies to hit imports from Malaysia and Vietnam.

The Chinese government could devalue the yuan in response, and impose retaliatory tariffs to support the national economy, the strategists reportedly said, forecasting that next year growth in China’s gross domestic product could slip nearly one point to 3.9%, in spite of such measures.

JPMorgan highlighted that a potential devaluation of the yuan by 10-15% is “significantly less than the 28-30% that could be expected if China’s central bank were to rehearse the 2018-19 playbook, when it allowed currency depreciation to offset 70% of the rise in US tariffs.” In 2018, Trump raised tariffs on Chinese goods to 20% from 3%.

Earlier this month, the yuan fell to its weakest level against the dollar since late 2023 amid uncertainty over Trump’s victory in the US presidential election. On Thursday, the Chinese currency traded at nearly 7.25 yuan to the greenback.

READ MORE: Trump vows to slap new tariffs on key US trading partners

Earlier this week, Trump – who will take office on January 20 – pledged to introduce 25% import duties on all products from Canada and Mexico, along with increasing tariffs on Chinese imports to 30%.

JPMorgan expects emerging economies, particularly manufacturing exporters such as Malaysia, Vietnam and Mexico, to be the hardest-hit by a US-China trade war. The analysts stressed that the affected states are likely to lose global market share, as Beijing would redirect exports toward other emerging markets. India would feel the least impact, the economists predict.