JPMorgan: China May Allow Yuan to Devalue by 10-15% in Response to Trade War

According to JPMorgan Chase (NYSE:JPM), China may allow its yuan to depreciate by 10-15% in response to any trade war initiated by President Donald Trump.

In a note titled "Preparing for the Storm," economists led by Jahangir Aziz stated that emerging economies would be hit by Trump's promises of higher trade tariffs, but they expect "a significant and early change in trade policy toward China." Aziz remarked, "Needless to say, China will be the worst affected."

JPMorgan forecasts that the tariff on China will rise from the current rate of 20% to an average of 60%. The note indicated that this could potentially harm 2025 economic expectations and slow growth from 4.8% in 2024 to 3.9%.

JPMorgan believes that the yuan will depreciate by 10-15% in reaction to tariffs. However, the note pointed out that this depreciation would be "significantly less than the expected 28-30%" if China's central bank were to follow the 2018-19 playbook, where it allowed its currency to depreciate to offset 70% of the increase in U.S. tariffs raised from 3% to 20% in 2018.