China’s yuan slumped to its lowest closing level in more than 17 years on Wednesday, rattled by an intensifying trade war between the world’s two largest economies. The offshore yuan briefly touched an all-time low overnight before recovering slightly, while Beijing’s state-owned banks scrambled to stabilize the currency.

The onshore yuan ended domestic trading at 7.3498 per dollar, its weakest finish since December 2007, as Washington’s aggressive new tariffs on Chinese goods officially came into force.

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The latest round of U.S. tariff hikes—including a staggering 104% duty on key Chinese exports—has put further pressure on the yuan. China’s top policymakers are set to convene as early as Wednesday to discuss new measures aimed at propping up the economy and shoring up financial markets, according to sources familiar with the matter.

Beijing Holds The Line

Despite the mounting tariff pressure, China’s central bank appears determined to prevent a sharp devaluation. Authorities have reportedly directed major state-owned banks to curb their dollar purchases, a move seen as an attempt to slow the yuan’s decline.

Analysts at Capital Economics warn that if these tariffs remain in place, Chinese exports to the U.S. could shrink by more than half over the next few years—even assuming the yuan weakens further to 8 per dollar. Such a scenario could shave 1-1.5% off China’s GDP, depending on whether exporters can reroute trade through third countries. Beijing is expected to counterbalance the economic impact with additional fiscal stimulus.

Market Intervention And Volatility

In a bid to steady the currency, the People’s Bank of China (PBOC) set its daily midpoint fixing at 7.2066 per dollar—the lowest since September 2023, but still significantly stronger than market expectations. This suggests that Chinese policymakers are reluctant to allow unchecked depreciation.

Major state-owned banks were actively selling dollars early Wednesday to slow the yuan’s decline, according to insiders. Despite these interventions, both the onshore and offshore yuan have fallen more than 1% this month, continuing their downward trajectory for the year.

Adding fuel to the fire, former U.S. President Donald Trump accused China of currency manipulation, claiming it was deliberately weakening the yuan to offset tariff costs. While a weaker yuan could make Chinese exports more competitive, a sharp drop also raises the risk of capital flight and financial instability—concerns that Beijing is keen to avoid.

For now, all eyes remain on China’s next move as it navigates a high-stakes economic standoff.