Across the world, global markets are already grappling with the anticipated economic impact of Donald Trump’s promise to increase tariffs as he prepares to assume the US presidency in less than two weeks. Trump has outlined plans for tariffs of up to 10% on global imports, 60% on Chinese goods, and a 25% surcharge on Canadian and Mexican products.

Experts warn these measures could disrupt trade flows, increase costs, and provoke retaliatory actions. While the full extent remains uncertain, challenges undoubtedly lie ahead.

In China more than anywhere else perhaps, the threat of tariffs could have a major effect on a number of industries, not least the solar panel production and electric vehicle sectors.

As such, with China expected to bear the brunt of Trump’s proposed trade policies, which some are already dubbing “Trump Trade Wars 2.0” investors are already responding, leading to a drop in the country’s stock exchanges and putting pressure on its central bank to stabilise a falling yuan.

China’s currency, which is very tightly regulated by Beijing, has reached its weakest point in 16 months, with the dollar trading above the symbolic CNY7.3 level that authorities had previously defended. Projections from Barclays in London now suggest the yuan could decline further to CNY7.5 per dollar by the end of 2025 according to Reuters, and potentially drop to CNY8.4 if the US actually goes ahead with enforcing a 60% tariff.

Even in the absence of tariffs, the yuan has struggled, weighed down by a weak domestic economy, less than impressive housing market in China, and falling Chinese government bond yields, which widen the gap with elevated US Treasury yields.

As a result, analysts now anticipate a gradual weakening of the yuan to support Chinese exporters as they navigate the impact of potential tariffs, and all China’s booming solar panel production and automotive industries can do is watch and wait. In 2018, the-then Trump administration imposed a 30% tariff on all imported solar panels, with China being the primary target. Efforts ahead of the tariffs being imposed to move Chinese panels through South East Asia were thwarted overnight.

This measure was part of a broader effort at the time to protect US manufacturers from what the administration deemed as unfair trade practices. The tariffs were structured to decrease over four years, falling to 15% by the final year. The decision was initially aimed at bolstering domestic solar panel production but over time drew criticism from renewable energy advocates who argued it would increase costs and slow industry growth.

In the automotive sector too, the new administration is expected to impose tariffs on Chinese car imports to address the trade imbalance and alleged intellectual property violations. How or if these tariffs will be added to existing tariffs imposed by the Biden administration is not yet known.

In late 2024, the Biden administration went ahead with proposing new rules to prevent the import or use of vehicular software coming from so-called countries of concern; essentially China. This saw the imposition of a 100% duty on Chinese-built electric vehicles; more than likely one carry-over from the Biden White House, that Trump’s team will be happy so see left well alone.

However, back in China, a sudden depreciation in the yuan could reignite fears of capital outflows, further undermining investor confidence.

These concerns come at a challenging time, with Chinese stocks having experienced their sharpest weekly decline in two years. As such, whilst Beijing remains typically tight-lipped on anything that might offer an insight into the inner workings of the state, the uncertainty of what to expect post-January 20 is already unsettling investors in other major Asian export economies with historic links to China, such as Vietnam and Malaysia.

If and to what extent these concerns trickle down through the rest of Asia will become clearer as the inauguration date approaches, but expect repercussions from China if Trump plays the tariff card too often.