Offshore yuan rises after China hits back with tariffs

The offshore yuan strengthened to around 7.26 per dollar on Friday, briefly hitting a two-week high earlier in the session, following China's announcement of reciprocal tariffs on U.S. imports.

Offshore yuan rises after China hits back with tariffs

The Customs Tariff Commission of the State Council stated that China would impose an additional 34% tariff on all American goods, effective April 10, 2025, in response to President Trump's unveiling of a similar 34% tariff on Chinese imports earlier this week. This move marks a dramatic escalation in the ongoing trade conflict, bringing the total levies on Chinese goods to a staggering 54%. The new tariffs are poised to have a significant impact on the flow of Chinese exports to the U.S., potentially crippling a large portion of China’s shipments, especially in key industries such as electronics, textiles, and machinery.

Traders to price in tariff war effects

Despite the potential for heightened economic tensions, the yuan saw some strength against the dollar as markets reacted to the news. Traders appear to be pricing in both the immediate effects of the tariffs and the broader implications for the global economy. The yuan's strength suggests that investors may be speculating that China could take steps to stabilize its currency, possibly through further market interventions or monetary policy adjustments, as the trade war intensifies. Elsewhere, China is also seeking to diversify its economic partnerships. The country announced that it would soon restart negotiations with the European Union, aiming to improve cooperation between Chinese and European companies, with a particular focus on the rapidly growing electric vehicle (EV) sector. This move underscores China's strategy to foster new trade relationships and reduce reliance on U.S. markets, particularly as tariffs threaten to disrupt established trade flows.

South Korea, China, and Japan agreed to pursue a free trade pact

In another significant development, earlier in the week, South Korea, China, and Japan agreed to pursue a free trade pact aimed at boosting regional trade. The pact is seen as a potential counterbalance to the tensions between the U.S. and China, highlighting efforts by Asian economies to enhance cooperation and reduce trade barriers within the region. These initiatives, alongside the tariff increases, suggest that global trade dynamics are shifting, with countries seeking new alliances and strategies to navigate the fallout from escalating trade wars and rising protectionism.