Dollar uncertainty and potential 'triple crisis' could spark a resurgence of the Chinese yuan.
In the face of mounting worries over the sustainability of its debt levels and a worsening deficit outlook, courtesy of the "One Big Beautiful Bill Act" and fresh tariff threats from President Donald Trump, analysts praise China's yuan for its robustness amid the escalating trade war. Some even speak of a "renaissance of the renminbi."
The level of concern over the US's debt burdens intensified when the US House of Representatives passed a comprehensive tax and spending bill last week, which spans over 1,000 pages and contains a mix of tax cuts, spending adjustments, and increases. A notable provision in the bill proposes raising the federal debt ceiling by an estimated $4 trillion.
The potential for 50% tariffs and a downgrade of its sovereign credit rating has led Dan Wang, China director of Eurasia Group, to comment, "The dwindling appeal of dollar assets is evident."
Strikingly, the yuan has displayed consistency since April 2 when Trump announced his unprecedented "Liberation Day" tariffs, gaining 1% against the US dollar. This resilience is particularly striking when contrasted with the nearly 13% devaluation experienced by the yuan during the trade war from 2018 to 2020.
The yuan's stability during this ongoing conflict can be attributed to several factors: effective management of economic policies, diversification of trading partners, strong domestic economic strengths, and the global economic uncertainty surrounding the US. China's cautious approach to economic reforms and currency management, increased export growth to markets like the EU and ASEAN, and a robust domestic economy have all played significant roles in maintaining the yuan's stability.
Simultaneously, the US faces a growing cloud of doubts about the reliability of US assets, providing a positive contrast for the yuan's steady trajectory in a volatile global market. This increased interest in the yuan as a more stable currency option is a testament to China's economic resilience amid the ongoing trade tensions.
Trade analysts view China's robust yuan as a potential alternative in a world questioning the reliability of US assets, given the increased federal debt and potential tariffs. Financial experts attribute the yuan's stability, even amid escalating trade tensions, to China's effective economic policies, export growth, and strong domestic economy.
