Yuan Emerges as Dollar's Rival in Trade Amid Trump Tariff Tensions

Asian exports have experienced a notable decline in recent months as global tariff measures intensify, according to several reports and analyses. The resurgence of protectionist policies, particularly under the Trump administration's proposed measures, has created uncertainty in international markets. These policies, including the imposition of high tariffs on semiconductor imports and other goods, have raised concerns over the long-term stability of global supply chains and the potential for further trade disruptions.

According to a recent article in The SCMP, the U.S. dollar’s dominance in global trade is being challenged as central banks around the world reassess their reliance on the currency. The article highlights how U.S. President Donald Trump’s proposed “Liberation Day” tariffs have prompted some countries to explore alternatives, such as the Chinese yuan, as a more stable currency for trade settlements. Central banks surveyed in the report expressed concerns over the long-term viability of the U.S. dollar, although it remains the primary reserve currency globally.

China has responded by strengthening the yuan and promoting its use in international trade, particularly in regions where U.S. economic pressure is most pronounced. The People’s Bank of China (PBOC) has set a steady upward trajectory for the yuan since April, when Trump announced the sweeping tariff measures. The PBOC’s strategy aims to reduce China’s reliance on the dollar-based global financial system by promoting the yuan as an alternative for cross-border trade and investment.

Experts argue that the yuan’s potential for internationalisation is gaining momentum amid the uncertainty created by U.S. trade policies. A report from the Bank for International Settlements, known as the “bank for central banks,” suggests that while the U.S. dollar remains dominant, the rise of digital currencies and stablecoins may reshape the global financial landscape. The report also notes that China’s efforts to integrate the yuan into global financial systems—such as through the promotion of yuan-backed stablecoins—could accelerate this shift.

In addition, the U.S. dollar's dominance has been further questioned as global markets react to Trump’s aggressive tariff policies. The proposed tariffs, which target non-American manufacturers in key sectors such as semiconductors, could lead to a reallocation of global supply chains. Analysts suggest that countries seeking to avoid the economic risks associated with the U.S. dollar may increasingly turn to alternative currencies, such as the yuan, to diversify their financial portfolios.

The U.S. tariff resurgence has also had a direct impact on the valuation of the yuan. The PBOC has taken steps to stabilize the yuan against the dollar, ensuring that it does not become a tool for economic warfare in the trade dispute. In recent months, the yuan’s midpoint rate has been maintained above the 7.2 benchmark, signaling a deliberate effort to keep the currency stable without resorting to devaluation. This strategy aims to prevent the yuan from becoming a target for speculative attacks or a tool for retaliatory measures from other countries.

While the yuan has yet to fully displace the U.S. dollar as the dominant global currency, its growing role in international trade and finance cannot be ignored. A recent report from The SCMP noted that yuan trade settlements have increased amid heightened volatility in the U.S. Treasury market. This shift is partly driven by the growing recognition of the yuan as a viable alternative in a world increasingly wary of U.S. economic dominance. The report also highlights that some analysts believe the yuan could emerge as a preferred currency in regions where U.S. sanctions and trade restrictions are prevalent.

The resurgence of U.S. tariffs has also created a ripple effect in other financial markets. The U.S. Treasury market, which has long been a safe haven for global investors, has seen a decline in demand as investors seek alternatives. This trend has been further exacerbated by the uncertainty surrounding the U.S. economy, including concerns over inflation, interest rate policy, and the potential for prolonged trade conflicts.

In summary, the recent resurgence of U.S. tariffs has led to a reevaluation of global trade and financial strategies. As countries and central banks seek to reduce their reliance on the U.S. dollar, the yuan is emerging as a strong contender for international trade settlements. While the U.S. dollar remains the dominant global currency, the shifting dynamics in the global financial landscape suggest that the yuan’s role in international trade and finance is likely to grow in the coming years. This trend is being driven by a combination of economic, political, and technological factors, including the rise of digital currencies and the need for diversification in an increasingly uncertain global economy.

Source:

[1] SCMP - "China’s yuan can rival US dollar as go-to currency if more accessible: economist" (https://www.scmp.com/knowledge/china-macro-economy/currency)