Analysts: CCP to Use Depreciation to Offset Tariffs

The sharp decline suggests Beijing is deliberately trying to offset tariffs, say Frank Qin, a senior political and economic analyst.

“In the past, the People’s Bank of China—the central bank under the CCP—would set a daily trading band of plus or minus 2 percent, within which the yuan’s exchange rate could fluctuate. If the rate approached or broke through a key psychological threshold, the central bank would typically intervene,” he told The Epoch Times. “However, this time, we’ve seen no such intervention throughout the process, which clearly indicates that the authorities are deliberately allowing the currency to depreciate.”

Qin highlighted the CCP’s use of devaluation during the last U.S.-China trade war.

“During the U.S.-China trade war from 2018 to 2020, the [yuan] depreciated by over 12 percent,” he said. “Therefore, they may adopt a similar strategy this time. In this context, the warnings issued by President Trump and Treasury Secretary Mnuchin are quite reasonable.”

Nonetheless, Qin believes that the CCP will find it hard this time to respond to the heavy tariffs imposed by Washington and the rest of the world through a significant devaluation.

“On one hand, the tariffs are simply too high. As of Wednesday [April 9] afternoon, we saw that the United States had increased them to 125 percent. Therefore, unless the [yuan] depreciates by several times over, it won’t be able to offset the impact,” he said.

“Furthermore, a sharp devaluation would lead to a substantial outflow of foreign exchange. Under these circumstances, the situation is very unfavorable for the CCP. It could also trigger other countries to impose even higher tariffs on China or erect additional trade barriers in response to the CCP’s using currency devaluation as a means to dump goods on a large scale.

“As a result, the idea that the CCP can once again rely on [yuan] devaluation to escape this challenge is almost impossible.”

Frank Tian Xie, a John M. Olin Palmetto chair professor in business at the University of South Carolina Aiken, agreed that Beijing may continue to expand the scope and extent of the devaluation, but if the depreciation is aimed at stimulating exports, its effectiveness will be limited.

“What we’re seeing now is a tariff rate as high as 145 percent, so in order to offset the effect of the tariffs even partially, the currency would need to depreciate significantly—not just by 10 or 20 percent, but possibly by 40, 50 percent, or even more,” he told The Epoch Times.

However, Xie holds that a large-scale devaluation comes at a significant cost for the CCP.

“Because devaluation would greatly increase the cost of imports,” he said. “As we know, China still relies heavily on imports from the United States, such as medical equipment, chips, and various energy products from abroad—all of which require foreign exchange. If [the yuan] depreciates too much, the rising costs of these imports would also become a burden for it.”

“Therefore, I believe the extent of the devaluation will remain limited—unless the [yuan] experiences a complete collapse, a total breakdown of the exchange rate. [Otherwise,] the devaluation won’t be enough to offset the impact of the tariffs. But I do believe they will carry out some level of devaluation.”

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