MNI INTERVIEW2: China-U.S Trade Deal Possible But Not On Yuan

Beijing could be willing to agree a trade deal with Washington but is likely to baulk at any agreement over currency, even though a stronger yuan would help narrow the economic gap between the two countries, a prominent Chinese economics professor told MNI in an interview. 

A potential trade deal could see China commit to purchases of more U.S. goods, such as oil, natural gas and agricultural products, to meet U.S President Donald Trump’s requirement of rebalancing trade relations, said Liu Qiao, dean of Guanghua School of Management at Peking University. (See MNI INTERVIEW: China-US Deal Possible After Leaders Meet)

This would be in the interests of both countries, he said, noting the threatened duties of up to 60% on Chinese goods would significantly exacerbate U.S. domestic inflation. Such a level would also cost China’s economy around 1.14% of real GDP and 5% of nominal growth, though a 25% tariff would only result in a loss of less than 0.5% GDP, Liu continued. 

Liu, also a member of the National 14th Five-Year Plan Economic Expert Committee, noted Beijing will likely target an average 4.7% of GDP growth when it releases its next five-year plan. (See MNI INTERVIEW: China Five-Year GDP Target Likely 4.7% Average)

CURRENCY CONCERNS

While there has been speculation in media and online about a potential “Mar-a-Lago” accord allowing for a devaluation of the dollar, this would be very difficult, he said.

As Beijing has successfully diversified the country’s trade to rely less on exports to the U.S., the yuan’s exchange rate against the euro, British pound, and other non-dollar currencies have become increasingly important, he said.

China’s recent success with AI firm DeepSeek has also reinforced Beijing’s confidence in its own ability to develop the most advanced technology without relying on the U.S., which will boost the certainty among Chinese officials in talks with Washington, said Liu, who also participated in the advisory meeting of Premier Li Qiang last year. China has worked hard over the past four years to strengthen its position in preparation for such negotiations, he noted.

However, China will need a stronger yuan in the long run to narrow the gap with the American economy, he added, noting that China’s economy shrank from 70% to 50% of the U.S. economy between 2021 and 2024.

While this decline was largely driven by a weak yuan and inflation-driven American growth, a relatively stronger currency would help ensure China’s share of GDP held above 60% against the U.S., he said.