President-elect Donald Trump vowed during the campaign trail that enemies of the US dollar will face severe trade consequences. The consequences include higher tariffs on goods entering the US and many other trade threats. Amid the ongoing de-dollarization agenda, the Chinese yuan is looking to topple the US dollar from the world’s reserve currency. Trump has promised to keep the USD’s hegemony intact despite threats from its adversaries.
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A currency war could brew after Trump takes office in January 2025. Both the leaders are hell-bent on pushing their currencies on the national stage. While the US dollar will fight to maintain its supremacy, the Chinese yuan will advance to expand its global share. The Trump presidency could see a currency war being waged that could affect the markets if things go wrong.
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Currency War: The US Dollar vs Chinese Yuan
Even before taking office, Trump announced that he is examining to impose tariffs on Canada, Mexico, and China. The president-elect plans “to charge Mexico and Canada a 25% Tariff on all products coming into the United States.” He also said that “we will be charging China an additional 10% tariff, above any additional tariffs” if they fail to crack down on fentanyl smuggling. The Chinese yuan will take a hit if Trump imposes the tariffs when he takes office and gives the US dollar an edge in the currency markets.
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Since the threat and tensions were already in place before taking oath in January 2025, China is taking precautionary steps. The Xi Jimping administration is not reacting to the threats as it could lead to escalations. “It clearly runs the risk of provoking an angry Trump administration and could prompt him to set tariffs even higher,” said Brad Sester, an official in the Biden administration. The stage is set for the currency war where the US dollar and Chinese yuan will take on each other.