The weakening of China's currency, the yuan, played a role in lessening the intended blow of U.S. tariffs on goods shipped from China. American tariffs were designed to make these goods more expensive for U.S. buyers. However, as the yuan lost value compared to the dollar, Chinese sellers earned more yuan for every dollar they received. This gave them leeway to reduce their dollar prices, effectively counteracting some of the added cost from the tariffs without significantly hurting their earnings in yuan. Consequently, Chinese exports remained somewhat competitive in the American market, even with the tariffs in place, though the extent of this effect varied based on how much the currency shifted, how sellers adjusted their prices, and the overall market conditions.

China likely didn't just stand by as its currency, the yuan, lost value when the U.S. put tariffs on its goods. Because Beijing has a strong hand in managing the yuan's value, it probably let or even nudged the currency to become weaker. This would have been a way to fight back against the tariffs, making Chinese goods cheaper for American buyers despite the added taxes. So, the yuan's drop wasn't just the market reacting to trade worries; it likely had Beijing's influence, which meant the U.S. tariffs didn't bite as hard as they were meant to, showing that tariffs alone might not work well when a country can adjust its currency.

There are several layers of depth in answering this question.

In the most apparent level, the principal question is whether Chinese government wants to depreciate Yuan in such a degree of offsetting the American tariff (more than 100%). In order that Yuan depreciation will completely offset the American tariff, it needs that Yuan will depreciate more than 50% (or depreciate to the half of the present value). Chinese government will not want to make it realize even if it has the power to do it.

In a deeper lave of inquiry, we should ask what the true intention of the American government or Trump administration is. There are tree different aims it pursues if they are contradictory with each other. (1) Contain China economically and prevent China to become the largest economic power. (2) Reduce the large deficit in trade and re-establish the overall trade balance for the USA. (3) Bring back essential industries into the USA and make America Great Again.

There are different believes among Trump administration. Peter Navarro, senior adviser, MAGA hero, and convicted believer that China is the main problem for American difficulties, represents the most hawkish policy against China. Although he was a professor of economics, it is doubtful if he has a good and plausible theory on tariffs and trade. He may be intending to achieve (1), but most probably in vain, because the United States (26% of the world GDP) has no suitable tools and ideas to change the world economic rules without cooperation with other economics powers including BRIGS and other Global South countries. President Trump may be considering that trade deficit is one of causes of American predicaments and wanting to regain trade surplus that the United States once enjoyed. However, he will not succeed in this policy, because the trade surplus of the United States (the total sum of trade surplus d deficits of the country with all other countries) is determined by a very different reason than the trade imbalances that seem influenced by relative costs of production (this is all the effects that tariffs can influence). It is a well established fact that

the trade imbalance is equal to Investment I minus Savings S in the national economic accounting. As long as I − S remains positive, the trade remains deficit. This does not imply that I − S is independent of trade. Each of I − S is dependent of export and import but there is other structural reasons that prevent I − S to become negative. It is very probable that the target (2) will be realized within his second term of presidency. Scott Bessent, Treasury secretary, nominated as main representative by President Trump in the trade deal between Japan and the United States, is a businessman as much as Mr. Trump and must know the flexibility to adjust their policies seeing the reactions of markets. It is uncertain if Mr Bessent and other people in the Trump administration have any concrete steps and plan that may regain manufacturing industries in the United States. At least within a few years time, it would be difficult to achieve that aim.

In the long run, it is not absurd to aim to get industries return to the United States, despite the common claims made by may of international trade theorists. In the short run, there will be certain degree of economic inefficiency to do so. But, in view of other sufferings that are caused by free trade (a simple example is the emergence of the Rust Best). On the political plain, the USA has to retain it defense force potential as the superpower of the world (independent of your opinion on the necessity of this American hegemony). Regaining the sufficient capacities in energy, steel and automobile production is the minimum they must keep inside of its territory. For this purpose, high rate tariffs in steel and automobiles must be the first step to take for America. It is possible to criticize the actually taken measures in this aim. For example, is it necessary to set a high tariff rates against Mexico and Canada. In a worst scenario, this kind of measures may push Mexico and Canada form a more efficient Global Value Chains within the rest of the world. Actually the United States retains more than a quarter of the world production, but this share will become smaller and smaller as the ret of the world economically develops. The present American tariffs and currency policies cannot reverse this tendency but accelerates it.

Yoshinori Shiozawa, Respected Professor, your knowledge in the field of economics is profound. If you would do me a favor, then I humbly request you to share more insights on the issue at hand. I am optimistic about writing a paper on this question. I shall benefit from your expertise.

Yoshinori Shiozawa Based on your answer, Professor Shiozawa, how do you think the global economic shifts, especially the rise of BRICS and the Global South, could influence the effectiveness of U.S. tariffs and currency policies in the long term?

Dear Aftab Haider ,

it is quite difficult to predict what will happen in the future. We do not even know the state of tariffs against various countries. One possibility is that reciprocal tariffs will be reduced to practically zero, which means that the United States charge 10 % tariff for many countries excepting China and some other countries. Many people consider that this is a great concession from the American side, although it is in fact charging tariffs four times more than the past average rates.

Reactions of Global South countries are also important. Even if they engage in the trade war against United States, it is highly probable that they keep their tariffs toward other countries except USA. In that case, they may form an economy as a whole three times bigger than enclosed America. They may get a higher growth rates than the USA. In that case, the failure of Trump attempt to change the global economic order will be manifest for all people.

I read many economists in the USA and in Japan who blame Trump trade policy. What they claim are almost right. High tariffs will not bring the effects that Trump and his advisers seem to aim. However, we should not laugh Trump and his entourage. We should admit that standard economics on international trade (we often call it international micro) had serious defects at the very basis of the theory:

(1) There is no notion of (involuntary) unemployment.

(2) There is no notion of industrial declines.

(3) Input trade is excluded from the standard trade situation.

(4) There is no theory of how the wage rate of each nation is determined.

(5) Technological development is ignored as fixed state of technology is assumed.

Standard trade theory assumed that equilibrium is attained promptly. In such world, there is no unemployment nor industrial declines. In the case of the USA, it implies that there must be no rust belt. If we think of these original sin of mainstream international economics, we should try to build a new theory of international trade that are relatively free from five defects cited above. Although such an ideal theory is not yet constructed, a core framework has been presented. Please see

(A) the nature of international competition among firms. (with Fujimoto, 2019) Fujimoto and Ikuine eds. Industrial Competitiveness and Design Evolution, Springer, pp.43-96.

(B) A new framework for analyzing technological change (2020 Journal of Evolutionary Economics 30: 989-1034)

(C) A new theory of international values: a restatement (2024 mimeo)

Note: (C) is a revised version of an older paper:

A new theory of international values: an overview

in Shiozawa, OKa and Tabuchi eds. A new construction of Ricardian theory of International Values, Springer, 2017. pp.3-73.

Readers who want to obtain the PDF of (C) are requested to send an e-mail to [email protected] .

Aftab Haider When the U.S. hit China with tariffs, the idea was to make Chinese products more expensive for American buyers—basically to give U.S. companies an edge. But here's the thing: around the same time, the Chinese yuan started to weaken. And when the yuan drops in value, Chinese exports become cheaper in dollar terms. So that kind of canceled out some of the impact of the tariffs.

Now, did China do this on purpose? Well, it's a bit of both. China didn’t openly say “we’re weakening the yuan,” but they didn’t exactly stop it either. They probably allowed it to slide just enough to help their exporters stay competitive without triggering a full-blown currency war. At the same time, market forces also played a role—investors were nervous about the trade war, so the yuan naturally faced pressure.

In the end, it kind of showed the limits of U.S. trade policy. Tariffs might work in theory, but if the other country adjusts its currency or uses other tools, it’s not so clear-cut. So yeah, currency moves definitely took some of the sting out of those tariffs.

Currency fluctuations—particularly yuan (RMB) depreciation—played a significant offsetting role in undermining the full intended impact of U.S. tariffs on Chinese exports during the U.S.-China trade war.

Here’s how and why:

1. Currency Depreciation as a Natural Shock Absorber

When the U.S. imposed tariffs on Chinese goods (especially between 2018–2020 under the Trump administration), the Chinese yuan weakened relative to the U.S. dollar. A weaker yuan meant:

• Chinese goods became cheaper in dollar terms, helping maintain their competitiveness in the U.S. market despite the added tariff costs.
• This partially neutralized the price hikes that tariffs were intended to create for U.S. consumers and importers.

Example:

If a product cost ¥100, and the exchange rate was 6.5 yuan/USD, it would cost about $15.38.

If the yuan depreciated to 7.0 yuan/USD, the same ¥100 product would cost about $14.29, helping absorb some or all of a 10% tariff.

2. Was It Deliberate?

• The U.S. accused China of manipulating its currency to soften the blow of tariffs.
• China denied this, citing market forces and capital outflows as the cause of yuan depreciation.
• In August 2019, the U.S. Treasury even labeled China a “currency manipulator”, though it later rescinded this.

3. Impact on Tariff Effectiveness

• Empirical studies (e.g., Amiti, Redding & Weinstein, 2019) found that Chinese exporters did not fully bear the cost of U.S. tariffs; instead, U.S. importers and consumers absorbed much of it, due in part to currency effects.
• The depreciation helped maintain export volumes of certain goods, reducing the pressure on Chinese firms and shielding them from the full burden of tariff penalties.

4. Broader Macroeconomic Effects

• A weaker yuan also made Chinese exports more competitive globally, not just to the U.S.
• However, depreciation had downsides: it risked capital flight, weakened domestic purchasing power, and complicated monetary policy for the People’s Bank of China.

Conclusion

Yuan depreciation functioned as a strategic buffer—whether market-driven or managed—against U.S. tariffs. By making Chinese goods cheaper in dollar terms, it softened the tariff blow, maintained export volumes, and diluted the intended trade rebalancing effect of U.S. policy. In effect, currency movements undermined the leverage that tariffs were designed to exert.