Will US dollar doubts, risk of ‘triple whammy’ give rise to yuan’s renaissance?

As the United States faces renewed concern over unsustainable debts and its deficit outlook, ignited by the “One Big Beautiful Bill Act” and new tariff threats from US President Donald Trump, China’s yuan is being hailed by analysts for its resiliency during the ongoing trade war, with some pointing to a “renaissance of the renminbi”.

Concerns over the sustainability of US debt levels intensified after the US House of Representatives last week passed a sweeping tax and spending bill, which is more than 1,000 pages and contains a range of tax cuts, spending reductions and increases, including a proposal raising the federal debt ceiling by US$4 trillion.

And Trump’s latest threat of 50 per cent tariffs on the European Union is adding even more uncertainty, according to analysts.

“The most fundamental reason behind the dollar’s decline is the growing doubt over whether US assets remain truly safe,” said Ding Shuang, chief Greater China economist at Standard Chartered, adding that there were many factors at play, including US economic policy, the recent downgrade of its sovereign credit rating and expansive fiscal policy, which would add deficit pressure.

Dan Wang, China director of Eurasia Group, said “the declining appeal of dollar assets is real”.

By comparison, the yuan has been on a steady trajectory – gaining 1 per cent against the US dollar since April 2, when Trump announced his unprecedented “Liberation Day” tariffs. This resilience sharply contrasts with the roughly 13 per cent devaluation that the yuan saw during the onset of the trade war from 2018 to 2020.

South China Morning Post