U.S. Treasury Secretary Scott Bessent emphasized on Thursday during his visit to Madrid that the weakening of China’s currency is not a threat to the United States, but rather to Europe.

In a joint interview with Reuters and Bloomberg after meeting with Chinese Vice Premier He Lifeng, which also included discussions on TikTok, Bessent made it clear that the renminbi has strengthened against the U.S. dollar this year, but has dropped to a historic low against the euro.

“RMB is stronger against the dollar this year. But against the euro, it has fallen to the lowest level in history – and that is a problem for Europe,” Bessent stressed.

He also rejected the notion that China is deliberately devaluing its currency to hurt Washington. According to him, the yuan remains a managed, semi-closed currency, and Beijing firmly controls its level.

Yuan Makes Chinese Exports Cheaper in Europe

Since the beginning of the year, the yuan has weakened against the euro from 7.5 to over 8.4. Meanwhile, it slightly strengthened against the dollar from 7.3 to 7.1, giving Chinese exporters a price advantage in Europe.

🔹 United States – imports from China fell by 14% due to heavy tariffs

🔹 Europe – trade with China rose by 6.9%

According to Bessent, this proves that U.S. tariffs are working – reducing the trade deficit. However, the redirected flow of Chinese goods is now hitting European markets, where the weaker yuan makes exports even cheaper in euros.

ECB Faces Deflation Risk

The European Central Bank spent the past year cutting interest rates to support growth in the eurozone. Just as inflation began to stabilize, markets were flooded with cheap Chinese goods, sparking renewed deflationary pressures.

According to Scope Ratings:

🔹 Core inflation and wage growth in the EU have slowed but remain above target

🔹 Labor markets, especially in Germany, remain tight

🔹 Public spending is rising, particularly on defense and infrastructure

🔹 A new EU energy trading regime is set to begin in 2027

Scope also notes that the ECB does not plan further rate cuts in 2025, though nothing is ruled out. Policy decisions will depend on inflation, growth outlook, U.S.-EU trade relations, and the euro’s exchange rate.

Strong Euro vs. Weak Yuan

The euro has strengthened by 13% against the dollar this year. If its rate climbs above 1.20, analysts warn it could undermine Europe’s competitiveness and heighten deflation fears.

Bessent highlighted the sharp contrast between the U.S. and Europe:

  • United States – tariffs reduced Chinese imports and stabilized the balance

  • Europe – faces both cheap Chinese goods and an overvalued euro

The euro remains the world’s second-largest reserve currency after the dollar, but the key question is: how long can it hold this position if a weak yuan keeps undercutting Europe’s competitiveness?

#ScottBessent , #Yuan , #euro , #usd , #TradeWar

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