MUFG said shifts in how US tariffs are applied, along with a weaker US Dollar, point to a gradual move lower in USD/CNY. It added that China may gain relative to some Asian exporters as effective tariffs on Chinese exports are expected to fall.
MUFG said some countries that had benefited and secured trade deals are now slightly worse off in the interim. It also said countries without fully finalised trade deals, such as China and Brazil, have come out better.
Tariff Shifts Favor China
Global Trade Alert analysis cited by MUFG estimates that effective tariffs for Brazil and China could drop by about 7% to 16% over the next few months. MUFG said this would narrow the tariff gap between other Asian exporters and China.
MUFG said the narrower tariff gap reduces the incentive to re-route exports to the US through other Asian economies. The report noted the article was produced using an AI tool and reviewed by an editor.
We believe the USD/CNY exchange rate is set for a steady, gradual decline in the coming weeks. This outlook is supported by a weakening U.S. dollar and, more importantly, shifts in American tariff policy. These changes are making Chinese goods relatively more competitive on the global stage.
The latest figures from China’s General Administration of Customs for January 2026 support this, showing exports to the U.S. unexpectedly rose by 3.5% year-over-year. This is the first significant uptick in six months, suggesting the lower effective tariffs are already having an impact. For traders, this reinforces the case for a stronger yuan.
Positioning And Volatility Dynamics
This represents a clear pivot from the trading environment we saw through most of 2025. Back then, the strategy was focused on a weaker yuan as supply chains actively moved to other Asian nations to avoid higher duties. That narrative of export re-routing is now losing its momentum.
In contrast to China’s gains, Vietnam’s January export growth to the U.S. slowed to just 1.2%, a sharp drop from the robust figures of last year. The narrowing of the tariff advantage reduces the incentive for companies to divert production away from China. This fundamental shift should continue to put downward pressure on the USD/CNY pair.
The market appears to be pricing in this steady trend, not a sudden drop. One-month implied volatility for USD/CNY has fallen to 3.8%, near its lowest level in over a quarter. This low volatility environment could make selling out-of-the-money call options on the pair an attractive strategy to collect premium while positioning for downside.
