Offshore yuan declines as attention remains on trade war

The offshore yuan ticked lower to around 7.31 per dollar as investors remained cautious amid growing concerns over an escalating trade war.

Offshore yuan declines as attention remains on trade war

Market sentiment weakened following renewed tariff actions by both the U.S. and China, raising fears of economic disruptions and reduced global trade flows. On Monday, President Trump signed an executive order imposing 25% tariffs on steel and aluminum imports and hinted at reciprocal tariffs on other countries, intensifying global trade tensions. This move follows the administration’s prior decision to levy a 10% tariff on Chinese goods and 25% duties on imports from Canada and Mexico, though the latter are currently on hold pending negotiations.

Chinese countermeasures

In response, China announced retaliatory measures, imposing new tariffs on key U.S. imports, including a 15% tariff on coal and liquefied natural gas (LNG) and a 10% tariff on crude oil, agricultural equipment, and vehicles, set to take effect on February 10, 2025. These tariffs could impact U.S. energy exports to China, a crucial market, and further strain diplomatic relations between the two economic giants. Despite the rising tensions, Trump revealed in an interview that he has spoken with Chinese President Xi Jinping since taking office, emphasizing their “very good personal relationship,” though he did not provide specifics about their conversation. This exchange is seen as a potential avenue for de-escalating trade hostilities, with some analysts speculating that behind-the-scenes negotiations may lead to tariff adjustments or exemptions for certain goods.

China’s economic outlook remains fragile

Meanwhile, China’s economic outlook remains fragile, with sluggish domestic demand, a struggling real estate sector, and ongoing deflationary pressures weighing on growth. The People’s Bank of China has maintained a supportive monetary policy stance, recently injecting liquidity into the banking system to stabilize markets. However, persistent capital outflows and a stronger U.S. dollar continue to pressure the yuan, limiting the central bank’s ability to manage currency stability effectively. Investors are closely watching upcoming trade discussions and official statements from both Washington and Beijing for any signs of compromise or further escalation, as the trajectory of U.S.-China relations remains a key factor driving market movements.