(Reuters) – China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher U.S. trade tariffs during a second Donald Trump presidency.
The considered move reflects China’s recognition that it needs a bigger economic stimulus to combat Trump’s threat of higher tariffs, people with knowledge of the matter said.
Trump has said he plans to impose a 10% universal tariff on imports and a 60% tariff on Chinese imports into the United States.
Allowing the yuan to depreciate could make Chinese exports cheaper, blunting the impact of tariffs and creating a looser monetary environment in mainland China.
Reuters spoke to three people with knowledge of the discussions about allowing the yuan to depreciate but requested anonymity because they are not authorized to speak publicly on the issue.
The People’s Bank of China (PBOC) did not immediately respond to Reuters requests for comment. The State Council Information Office, which handles media inquiries for the government, also did not immediately respond to a request for comment.
Letting the yuan depreciate next year would deviate from the usual practice of keeping the exchange rate stable, the sources said.
The tightly managed yuan is allowed to move 2% either side of a daily midpoint set by the central bank. Policy comments from top officials typically include pledges to keep the yuan stable. While the central bank is unlikely to say it will no longer maintain the currency, it will emphasize the need to give markets more power in determining the value of the yuan, a second source with knowledge of the matter said.
At a meeting of the Politburo, a decision-making body of Communist Party officials, this week China pledged to pursue an “appropriately accommodative” monetary policy next year, marking the first easing of its policy stance in about 14 years.
The comments made no reference to the need for a “basically stable yuan,” which was last mentioned in July but was also missing from the September readout.
Yuan policy has featured heavily in financial analyst notes and other think tank discussions this year.
In an article published last week by leading think tank China Finance 40 Forum, analysts suggested that China should temporarily switch from anchoring the yuan to the US dollar to pegging it to the value of a basket of non-dollar currencies, particularly the euro, to ensure that the exchange rate is flexible during a period of trade tensions.
A third source familiar with the central bank’s thinking told Reuters that the PBOC has considered the possibility of letting the yuan fall to 7.5 per dollar to counter any trade shocks. That’s a depreciation of about 3.5% from current levels around 7.25.