Analysis: US Avoids Real Fight With China Over Weak Yuan

The Trump administration has stepped up efforts to catch Chinese goods rerouted through third countries, but has avoided the one tool economists say could actually curb China's massive trade surplus: pressuring Beijing to let its currency rise.

Since China threatened last October to cut off rare-earth magnet exports, prompting a truce, the White House has largely stopped escalating the trade war. Imports directly from China fell 40% in the year to June compared with the same period in 2024, a figure the administration has touted as a win.

But last week the White House acknowledged that Chinese-made components are increasingly reaching the US through other countries. Trade adviser Peter Navarro criticized Chinese motors installed in recliners imported from Vietnam, citing a Commerce Department analysis that found $67 billion in goods from China were transshipped through Mexico, India and Vietnam in 2025.

A White House report, titled "The Great Transhipment Scam," said rerouted components were destroying manufacturing jobs in cities including Milwaukee, Cleveland, Toledo, Hickory, Phoenix and Youngstown. The administration unveiled an AI-powered tool to scan shipping manifests and bills of lading to identify rerouted goods.

But the new detection system is unlikely to restore factory jobs, which have remained roughly flat over two and a half administrations spanning a decade. It also isn't expected to reduce the overall US import bill, which remains higher than in 2024 despite tariffs, or meaningfully slow China's export growth.

Economists point instead to the undervalued Chinese yuan as a central driver of China's export dominance, which has swamped US markets and pressured industrial development worldwide. China's share of global manufacturing exports has grown from 3% to 20% since 1995, and it now accounts for more than half of global exports in hundreds of manufacturing categories, with a current account surplus equal to roughly 5% of its GDP.

Gene Frieda of the London School of Economics said "the barrier to progress is not policy design; it is policy preference," arguing Beijing intentionally keeps the yuan weak to preserve global dependence on Chinese goods.

Historical precedent supports currency intervention as a lever: the 1985 Plaza Accord, which weakened the dollar, helped narrow the US trade deficit with Japan, and China's surplus shrank after the yuan appreciated following the 2008 financial crisis. Brad Setser of the Council on Foreign Relations said currency adjustment, rather than enforcement measures, would likely drive the realignment needed to reduce China's trade imbalance.