US and China headed for currency war: warns deVere CEO

Trade Arabia

15-04-2025

US President Doland Trump's tariff-led trade war is pushing the world's two largest economies toward a new front: a currency war — one that will be gradual, deliberate, and globally disruptive, warns the CEO of global financial advisory giant, deVere Group.
With US tariffs on Chinese goods now averaging 145%, Beijing is under growing pressure to respond. But with traditional trade retaliation options constrained, a new strategy is forming — one based on a controlled, step-by-step weakening of the yuan.
The signs are already clear. The offshore yuan dropped to a record low of 7.4287 against the dollar. Onshore, the currency sank to its weakest since 2007. The People's Bank of China, while insisting on stability, has been setting the yuan's midpoint fix at levels not seen in years.
Nigel Green, CEO of deVere Group, says: 'China is unlikely to openly weaponise the yuan. But under mounting tariff strain, they're likely to let it slip — slowly and carefully. It won't look like a headline war, but it will have headline consequences.'
There's little appetite in Beijing for a sharp devaluation. The memory of 2015's capital exodus—when $700 billion fled Chinese markets after a sudden currency move—still haunts policymakers.
A similar episode today could trigger 'damaging capital flight' and erode already fragile domestic confidence.
He continues: 'Instead, China is walking a narrow path: using small, incremental devaluations to support exporters without inviting panic. It's an approach aimed at shielding growth while maintaining the image of financial control. But even a modest yuan decline matters.'
A weaker Chinese currency lowers the real cost of exports, softening the blow from US tariffs. It also pressures other Asian economies to consider devaluing in response, setting off ripple effects through emerging markets. For the US, it complicates inflation dynamics—import prices may fall, but global volatility may rise.
'Currency shifts don't happen in a vacuum,' explains Green. 'They reshape capital flows, unsettle risk assets, and provoke reactions from other central banks. For global investors, ignoring this would be a serious error.
'Unlike the free-floating dollar or yen, the yuan is tightly managed.
'Every day, the Chinese central bank sets a central reference rate, allowing only limited movement around it. That system gives Chinese authorities control and it also gives them the tools to engineer a slow, sustained decline without outright triggering alarm bells.
'This approach fits a broader pattern in modern financial conflict: avoid sudden moves, but gradually change the terms of trade. The goal isn't shock. It's attrition.'
The bigger concern is what comes next. If a slow yuan weakening begins to reverse capital inflows, Beijing could be forced to tighten controls further, or accelerate its depreciation. Either route could stoke fresh volatility across currencies, bonds, and equities.
The deVere CEO says: 'Investors should be watching the yuan as closely as they watch the Fed or earnings season. The slow-motion currency shift between the US and China is central to how this phase of global economic rivalry will play out.'
He concludes: 'I believe we're entering a new stage of financial confrontation—less visible, but no less strategic. The yuan is becoming a pressure valve, and investors need to understand what's coming.
'The trade war may have opened with tariffs, but it won't end there.'