tl;dr
U.S. Treasury Secretary Scott Bessent dismissed concerns about China’s weakening yuan, calling its decline against the euro a "problem for the Europeans." The yuan has fallen to a record low against the euro (8.4 yuan per euro) while rising against the dollar. This has shifted trade dynamics, with U...
**The Yuan’s Unlikely Weapon: How China’s Currency Crisis is Reshaping U.S.-Europe Trade**
In a sharp rebuke of European concerns, U.S. Treasury Secretary Scott Bessent recently dismissed worries about China’s weakening yuan, telling reporters in Madrid that the currency’s plunge against the euro is “a problem for the Europeans.” His comments, made during a high-stakes U.S.-China trade dialogue, underscore a growing rift in how Washington and Brussels are navigating their economic relationship with Beijing.
The yuan, or renminbi, has defied expectations this year. While it’s gained ground against the U.S. dollar—rising from 7.3 to 7.1—its value has plummeted against the euro, hitting a record low of 8.4 yuan per euro. This divergence has created a surreal trade dynamic: American tariffs have slashed U.S. imports from China by 14%, but European markets are seeing a 6.9% surge in trade with Beijing. “The RMB is actually stronger this year versus the dollar,” Bessent said, dismissing claims that China is manipulating its currency. “It’s a closed currency. So they manage the level.”
But for Europe, the fallout is real. A weaker yuan makes Chinese goods cheaper in euro terms, flooding markets with affordable products and stoking fears of deflation. The European Central Bank (ECB), already grappling with slowing inflation and a fragile recovery, now faces a dual challenge: rising public spending on defense and infrastructure, and the unexpected arrival of cheap Chinese imports. “The ECB’s been cutting rates to support growth, but now cheap imports are pushing prices down again,” said one analyst.
The timing couldn’t be worse. After a year of aggressive rate cuts, the eurozone’s inflation has cooled to 2.1%, but core inflation and wage growth remain stubbornly above the ECB’s 2% target. Meanwhile, the euro has surged 13% against the dollar this year, raising fears that its strength could further hurt Europe’s export competitiveness. “If the euro hits 1.20, it could trigger a deflationary spiral,” warned Scope Ratings, a credit agency.
Bessent’s remarks highlight a broader geopolitical divide. The U.S. has doubled down on tariffs under President Trump, aiming to curb China’s trade surplus and protect domestic industries. Europe, however, finds itself caught between Beijing’s economic allure and its own fragile recovery. “America’s strategy is working by Scott’s count,” said one trade expert, “but the redirected flow of Chinese goods is now hitting Europe at a sensitive time.”
As the ECB prepares to weigh its next move, the yuan’s role as an unintended economic weapon raises a pressing question: How long can the euro maintain its status as the world’s second-largest reserve currency? For now, the answer lies not in Washington or Beijing, but in the delicate balance of Europe’s markets—and the unpredictable dance of currency fluctuations.
*What’s your take on how Europe should respond to this shifting trade landscape?*