U.S. Treasury Secretary Scott Bessent said in Madrid on Thursday that the slump in China’s currency isn’t a problem for the United States, it’s Europe that should be worried. Speaking during a joint interview with Reuters and Bloomberg, Scott made the comments after meetings with Chinese Vice Premier He Lifeng as part of the U.S.-China trade discussions, which also included talks on TikTok. He made it clear that the yuan, also known as the renminbi, has actually strengthened against the U.S. dollar this year, but collapsed to a record low against the euro. “The RMB is actually stronger this year versus the dollar. Now it’s at an all-time low versus the euro, which is a problem for the Europeans,” Scott, rejecting the idea that Beijing was trying to devalue its currency to gain an unfair edge against Washington. He said Chinese officials haven’t tried anything of the sort with the U.S. and explained the reality behind the currency’s movement: “It’s a closed currency. So they manage the level.” Yuan collapse helps Chinese exports flood europe Since January, the yuan has plunged from 7.5 per euro to over 8.4, triggering concerns across Europe. Meanwhile, against the dollar, it’s gained slightly from 7.3 to 7.1. This divergence has created a lopsided trade dynamic, because while the U.S. has seen its imports from China drop 14% due to aggressive tariffs, Europe has recorded a 6.9% increase in trade with China. So, Scott said the U.S. tariffs are doing what they were meant to do, cutting down the trade deficit. But the redirected flow of Chinese goods is now landing in European markets instead, where the yuan’s weakness is making Chinese exports even cheaper in euro terms. The weakening of the yuan is hitting Europe at a sensitive time, as the European Central Bank (ECB) spent the last year consistently cutting interest rates to support growth across the eurozone. Between June 2024 and June 2025, monetary easing was pushed aggressively, but just as prices were starting to stabilize, cheap Chinese products began flooding the market, triggering deflation. Scope Ratings says EU’s core inflation and wage growth are still above target, even though they’ve cooled slightly. Labor markets remain tight, especially in major economies like Germany, though public spending is up across the continent, especially in defense and infrastructure, which is pushing prices higher again. Plus, a new EU energy trading regime is expected to start in 2027. ECB watches euro strength and deflation risks The ECB has no more rate cuts planned for 2025, according to Scope. But it’s not ruling anything out. The next change in policy will depend on several factors: inflation trends, the growth outlook, US-EU trade relations, and most importantly, the exchange rate. So far this year, the euro has gained 13% against the dollar. If it rises beyond 1.20, it could hurt Europe’s competitiveness and raise fears of deflation. Scott’s comments on the yuan point to a growing divide between how the U.S. and Europe are handling their economic relationship with China. America’s trade strategy under President Donald Trump is designed to push back against Chinese imports, and it’s working by Scott’s count. Europe, on the other hand, is getting hit from two directions—an undervalued yuan and an overvalued euro. The euro is still the second major reserve currency after the dollar. But how long will that last? We’ll be watching. Join Bybit now and claim a $50 bonus in minutes
