Can China win a trade war with Trump just by depreciating the yuan?

Leading economist Lian Ping says China is well-positioned to deal with tariffs.

President Trump has kicked off his second term in office with an aggressive round of tariff hikes.

He’s placed an additional 10% levy on Chinese goods, as well as a 25% tariff on goods sourced from Canada and Mexico.

Beijing has long been concerned over the impacts of a Trump-led trade war on China’s economy. In the final quarter of last year, these concerns led it to flag a huge round of fiscal and monetary stimulus for 2025.

Has China’s export economy become more resilient since Trump 1.0?

Lian Ping (连平), chair of the China Chief Economist Forum, argues that Beijing may not have that much to fear from aggressive US protectionism.

He highlights the increased resilience of China’s economy to external disturbances, as well as multiple tools it has for dealing with a Sino-US trade war.

Lian points out that China’s dependence on the US market has fallen sharply ever since H2 2018, when Trump kicked off a cycle hikes to tariffs that raised them from 3.1% to around 21.2% at present.

When Trump’s trade war first started, the US accounted for over 20% of all Chinese exports. This figure has since dropped by almost a third, to less than 15%.

According to Lian, “there is only limited room for further large-scale declines in exports to the US,” because China’s increasing dominance of global manufacturing will make it more difficult for the US to slash imports from the Middle Kingdom.

The added value of China’s manufacturing sector was ranked no. 1 globally in 2023, at 35% of the total, according to OECD figures.

By comparison, the next five countries (the US, Japan, Germany, South Korea and India) accounted for 28%. UNIDO forecasts that China’s share could rise to 45% by 2030.

Lian further notes that China has since enhanced its competitive advantages when it comes to high and medium-segment manufacturing in the global industry chain.

“In recent years especially, the commercial goods export structure has undergone further optimisation,” Lian writes, pointing to the increased share of hi-tech goods, including EVs, smartphones, batteries and solar PV.

Lian also highlights the increasing diversification of China’s export markets, driven by RCEP alongside bilateral trade agreements signed by Beijing with nations in ASEAN, Europe, Latin America and the Middle East.

In 2024, Belt and Road nations accounted for 50% of China’s trade with other countries.

“Chinese enterprises are continually expanding and diversifying their markets by going abroad, and vigorously developing cross-border e-commerce,” Lian wrote.

Finally, Lian notes that because Beijng has dealt with aggressive protectionist measures under the presidencies of both Trump and Biden, China has now “accumulated rich experience in dealing with tariff wars.”

“China has multiple methods, including rare earth metal export controls and de-dollarisation, to counter-attack against US trade protectionist policy.”

Yuan devaluation China’s best weapon for tackling US tariffs

The one weapon highlighted by Lian as the most potent tool for dealing with a Sino-US trade war is depreciation of the yuan.

“Currency devaluation is generally considered to be of help in raising export competitiveness - especially of labour intensive products - and driving export growth,” he writes.

Lian considers this to still be a viable tool for Chinese policymakers to deploy in 2025, even following a sizeable fall in the yuan to the greenback last year.

“In 2024, the renminbi fell 2.88% against the US dollar, and in 2025 there could still be further depreciation,” Lian writes.

“This could partially buffer the negative impact of external tariff shocks on China’s labour-intensive industries.”