Home > Business > Economy

Won breaks 1,480 against dollar as U.S.-China currency war escalates

Published: 09 Apr. 2025, 19:47

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 2,293.70 points on April 9, down 40.53 points, or 1.74 percent, from the previous trading session. The won closed at 1,484.1 against the dollar in onshore trading, up 10.9 won from the previous session — its weakest finish in 16 years since March 12, 2009. [YONHAP]

Korea’s currency and markets took a hit Wednesday as intensifying U.S.-China trade friction morphed into a currency battle. After China allowed the renminbi to weaken in response to fresh U.S. tariffs, the won — closely tied to Chinese currency's movement — plunged to its weakest since the 2008 financial crisis while markets posted steep losses.

The won closed at 1,484.1 against the dollar in onshore trading, up 10.9 won from the previous session and its weakest finish in the 16 years since March 12, 2009. The slide came after the U.S. followed through on tariff escalations, prompting a defensive policy response from Beijing that sent the yuan tumbling.

Heightened uncertainty around global trade and growth prospects increased demand for safe haven assets. The won’s fall accelerated after China, hit with a 104 percent tariff, moved to devalue the renminbi, reinforcing the currency link between the two economies.

Beijing uses currency as retaliatory tool against tariffs

The People’s Bank of China (PBOC) on Wednesday its currency's so-called fixing to 7.2066 yuan per dollar, a 0.04 percent depreciation from the previous day. It was the fifth straight session the PBOC lowered the midpoint, bringing the yuan to its weakest level in the nearly 20 months since September 2023.

The Chinese currency also slumped as low as 7.429 yuan per dollar in New York trading on Tuesday — its weakest print since offshore trading began in 2010. Reuters reported that Beijing was considering allowing further depreciation toward 7.5 yuan as it seeks to ease the burden of tariffs, which are as high as 104 percent on Chinese exports.

A weaker renminbi lowers the dollar price of Chinese goods, offsetting some of the pressure from U.S. trade actions and enhancing export competitiveness.

A currency exchange board at Gimpo International Airport in Gangseo District, western Seoul, displays the won-dollar rate and other foreign exchange rates on April 9. [NEWS1]

Currency war heats up as U.S. signals tougher response

Beijing’s latest move could fuel further tensions with Washington. The United States favors a weaker dollar to support domestic exports, and is unlikely to tolerate what it sees as currency manipulation. Devaluation also dilutes the impact of U.S. tariffs, frustrating policymakers in Washington.

China is “manipulating their currency today as an offset against the tariffs,” said U.S. President Donald Trump on Tuesday at a National Republican Congressional Committee dinner.

Analysts see room for Washington to escalate tariff measures in order to force China to negotiate on currency. In a 2024 report titled “A User’s Guide to Restructuring the Global Trading System,” White House adviser Stephen Miran wrote that trade partners like China and Europe may become more willing to engage in forex agreements in exchange for tariff relief.

Other U.S. trade partners, including allies like Japan, are also positioning currency as a potential point of negotiation. According to the Nikkei, Tokyo is preparing for the possibility that the yen’s weakness may become a sticking point in future talks with the United States, given Trump’s past criticism of a “cheap yen.”

“China’s devaluation offsets some tariff pressure, but it can’t fully counteract U.S. tariffs this steep,” said Min Kyung-won, an economist at Woori Bank. “If the yuan drops too far, China faces capital flight risk. Eventually, itmay have no choice but to engage in forex negotiations.”

Some market watchers warn that the won could weaken beyond 1,500 per dollar if the currency conflict escalates.

“Given how much more aggressive Trump’s tariff stance has turned out to be, short-term volatility is likely to rise,” said Choi Ye-chan, a researcher at SangSangin Investment & Securities. “We have to be open to the possibility of the won sliding to a value of 1,500 won per dollar.”

U.S. President Donald Trump attends the National Republican Congressional Committee dinner at the National Building Museum in Washington D.C. on April 8. [REUTERS/YONHAP]

Policy uncertainty clouds rates and inflation path

The broader risk is that both China and the United States will keep escalating pressure to gain an edge before any formal negotiation, worsening global economic instability. Uncertainty is also growing around inflation and interest rate trajectories, which play a critical role in macroeconomic policy and financial markets. Reciprocal tariffs could reignite upward pressure on consumer prices, potentially disrupting the current trend toward interest rate cuts.

Yields on U.S. Treasurys spiked on inflation concerns. The 10-year note rose 0.11 percentage points to 4.29 percent as markets began pricing in the risk of delayed central bank rate cuts. A more hawkish U.S. rates outlook limits the Bank of Korea’s room to maneuver, despite growing domestic headwinds.

“With no immediate resolution in sight, Korea may need to maintain the status quo while watching how the U.S.-China situation evolves,” said Kang Sung-jin, an economics professor at Korea University. “The direction of our economic response will depend on how negotiations unfold.”

The Kospi fell 1.74 percent to close at 2,293.7 on Wednesday, its lowest since November 2023 and first time below the 2,300 mark in more than a year. Foreign investors net sold 708.4 billion won ($480 million) while institutions shed 123.6 billion won, reflecting deepening risk aversion amid unresolved trade and currency tensions.

The Kosdaq also declined 14.14 points, or 2.15 percent, to 644.31.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY KIM NAM-JUN [[email protected]]