China is reportedly considering allowing the yuan to weaken in 2025 as part of its response to the looming threat of higher US tariffs under a second term for former President Donald Trump. As Washington prepares to impose aggressive trade measures, including a universal 10% tariff and a 60% tax on Chinese imports, Beijing is looking for ways to soften the blow to its economy, which is already under strain. This shift in currency policy could represent a significant departure from the nation's long-standing practice of maintaining a tightly controlled exchange rate, as reported by Reuters.

For years, the People’s Bank of China (PBOC) has carefully managed the yuan’s value, allowing only limited fluctuations around a daily midpoint. However, sources close to the matter suggest that the Chinese government is preparing to loosen this control, potentially allowing the yuan to depreciate further in response to external economic pressures. Analysts believe that a weaker yuan could help offset the impact of rising tariffs by making Chinese exports cheaper and more competitive in global markets. This could also provide a much-needed economic stimulus by easing deflationary pressures and boosting export revenues.

At a recent Politburo meeting, Chinese policymakers signalled their intent to adopt a more "appropriately loose" monetary policy in 2025, the first such easing in 14 years. Notably, the statement omitted the usual reference to keeping the yuan "basically stable," a shift that many view as a sign of Beijing's willingness to allow greater market influence over the currency’s value. While the central bank is unlikely to outright abandon its commitment to currency stability, it appears prepared to take a more hands-off approach as part of a broader economic strategy to counteract external threats, particularly from Washington.

During Trump’s first term, the yuan weakened by more than 12% against the US dollar as trade tensions escalated, with tariffs serving as a key factor in the depreciation. Analysts predict that the yuan could fall to CNY7.37 per dollar by the end of 2025, with some estimates suggesting a potential dip to CNY7.5 per dollar. This would represent a 3.5% decline from current levels, which have already seen the yuan lose nearly 4% of its value since late September, as markets brace for the Trump presidency.