The recent escalation in US tariffs has sparked an interesting market reaction: the dollar has weakened, rather than strengthened as many had expected. Are markets detecting a potential change in Washington’s approach to the dollar?
For decades, the strong dollar was a badge of economic strength and a reflection of the US currency’s reserve status. But now, with echoes of Nixon’s 1971 delinking of the dollar from gold and the 1985 Plaza Accord, there are signs that policymakers might once again be turning to dollar devaluation as a tool to address trade imbalances. This time, however, the global landscape is very different—and the unexpected winner of such a move could be China.
Traditionally, China has been seen as the champion of a weak currency, its export engine fuelled by a competitive renminbi. But this view underestimates the evolving priorities of a maturing economy. For a country shifting from export-led growth to one driven by domestic demand and technological advancement, a stronger currency offers distinct advantages. It enhances international purchasing power, lowers the cost of imports, and signals global confidence in the country’s economic trajectory. Far from being a liability, a rising RMB could serve Beijing’s strategic goals.
Picture a scenario where the dollar slides by 20 percent or more. A substantial appreciation of the RMB would immediately make global resources, technologies, and strategic assets more accessible to Chinese firms. This could turbocharge Beijing’s ambitions in critical industries, from clean energy to AI. Domestic consumption, already a focal point of China’s policy pivot, would benefit as imported goods become more affordable. A stronger RMB could cushion consumers from price pressures, giving the central bank room to stimulate without stoking inflation.
Chinese companies would also gain a formidable edge in overseas investment. Global acquisitions—particularly in sectors aligned with long-term strategic interests—would become more attractive. Exporters, especially in lower-end manufacturing, might face margin pressure, but the broader shift could usher in a more resilient, innovation-led growth model. This would align neatly with China’s goal of climbing the value chain, positioning itself as a leader in high-tech production rather than just the world’s factory floor.
Perhaps most significantly, a rising RMB—especially one strengthened in part by US policy—could hasten its internationalisation. Wider use in trade settlements, commodities pricing, and even reserve holdings would mark a major step toward reducing global reliance on the dollar. In that sense, a US strategy aimed at correcting trade imbalances could inadvertently bolster China’s global financial clout.
As Washington weighs the trade-offs of a weaker dollar—most notably higher import prices and possible inflation—Beijing might find itself handed a golden opportunity. If history is any guide, the true beneficiary of America’s dollar diplomacy could be the very rival it seeks to contain.
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