U.S. President Donald Trump on April 8 accused Beijing of manipulating its currency to soften the impact of punitive tariffs, warning that the strategy could backfire on the oil-importing Asian nation. Speaking at a National Republican Congressional Committee event just hours before the latest U.S. retaliatory tariffs on China were set to take effect, Trump assailed the policy without elaborating on how it hurts the U.S.
Yuan Plunges to 17-Year Low
The president's comments came as China's yuan neared its weakest exchange rate against the dollar in 17 years. According to a Nikkei Asia report, the onshore yuan, which trades within a 2% band of a central bank-set reference rate, fell to 7.35 per dollar on April 9 morning. The freely traded offshore yuan had dropped to as low as 7.42 per dollar a day earlier. Although the People's Bank of China (PBOC) sets the reference rate based on economic fundamentals, critics argue it began setting a weaker rate after Trump imposed a 34% "reciprocal" tariff on Liberation Day.
Tariff War Spiral
In response, China slapped its own 34% reciprocal tariff on American imports, prompting Trump to add an additional 50% tariff. This brings the effective tariff rate on Chinese goods entering the U.S. to 104%. Trump criticized China's alleged manipulation tactics, suggesting they would harm the world's second-largest economy. "But in the end, it's not good because they have to buy oil. We don't need oil and gas, we have more than any other country, [but] they have to buy it and that's where it hurts them," Trump said.
Historical Context and Market Implications
The currency manipulation allegations have long strained U.S.-China relations. In 2019, the Trump administration officially labeled China a currency manipulator after the yuan weakened, the first such designation since 1994. It remains unclear what punitive measures the current administration will take. Analysts warn that escalating trade tensions could fuel global financial volatility, with some capital potentially rotating into safe-haven assets like Bitcoin. However, cryptocurrency markets remain subject to their own fundamental uncertainties amidst the macro turmoil. The escalating tariff war continues to reshape global trade dynamics and investor sentiment.