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Donald Trump’s decision to raise tariffs on Chinese imports to 54% consists of a new 34% reciprocal tariff alongside a prior 20% levy, prompting analysts at ING to view the trade relationship as nearing the worst-case scenario. Certain goods, particularly electric vehicles, may see even higher tariffs.
ING warns that this escalation could incite a strong retaliatory response from China, which is already facing deflation and slowing growth. Speculation suggests the People’s Bank of China (PBOC) might implement its first policy easing of the year.
Forecasted monetary measures
ING expects the PBOC to reduce interest rates by 30 basis points and lower the reserve requirement ratio by 100 basis points in 2025, with potential for further actions if necessary. The central bank has indicated its readiness to ease policy as suitable.
The tariff increase is likely to exert downward pressure on the yuan (CNY) in the short term due to the anticipated economic impact and rising expectations for monetary easing. Nonetheless, ING asserts that the PBOC will not deliberately devalue the currency in response.
Instead, the PBOC is expected to focus on maintaining a stable exchange rate, with low volatility projected for USDCNY. The bank’s base case estimates a trading band of 7.00 to 7.40 for the rest of the year.
What we’ve seen here is a clear tightening of trade policy out of the US, aimed firmly at imports from China. The recent tariff raise—now totalling 54%—includes both existing duties and a hefty 34% bump, taking some product categories, like electric vehicles, into even more restrictive territory. ING’s analysis reads the situation as one approaching the worst practical outcome for bilateral trade.
Chinese response and trading outlook
With China already grappling with cooling domestic demand and persistent deflationary trends, this new disruption increases the likelihood of further stress across its manufacturing and export sectors. The pain may not be instant, but it will filter through. Chinese authorities are no strangers to countermeasures, and a direct reply should be expected. Much of the speculation rests on a monetary response.
We think the suggestion of forthcoming interest rate cuts is well-founded. ING’s forecast of a 30 basis point reduction, coupled with a 100 basis point cut to the reserve requirement ratio in 2025, gives a clear message: the PBOC isn’t hesitant to shift gears. If trade conditions worsen further, the bank is not short of room to adjust.
In the near term, there’s little doubt that the yuan will come under pressure. As the likelihood of looser monetary policy grows, while trade flows face fresh impediments, the market will price this in quickly. That said, devaluation by design is off the table. Maintaining credibility remains a top priority for Beijing. We shouldn’t expect any abrupt weakening engineered by the central bank.
Rather, the PBOC is positioning itself to take a steady hand. The USDCNY’s projected range between 7.00 and 7.40 underscores this. Low volatility isn’t just an ambition—it reflects the bank’s real intention to shield against disorderly market shifts, even if rate cuts go ahead.
For those managing exposure to Chinese assets or currency-linked products, this changing mix of macro and trade variables presents clear adjustments one should prepare for. Momentum plays are unlikely to hold, and broad-based directional trades on the yuan may not materialise as anticipated. Any strategies should therefore look at smaller, more tactical positioning rather than chasing long swing setups.
The market’s lens will stay fixed on how the PBOC recalibrates. From our side, we’ll be focusing on carry returns, forward rate expectations, and capital flow cues to navigate opportunities. One-sided bets may get punished in the churn, so adjusting duration and scaling exposure as volatility unfolds might prove a wiser route.
