SINGAPORE—One simple step could help make America’s economy great again, according to President Trump. It would make China great too, according to a leading adviser to the Chinese government.
The two are talking about a significant weakening of the dollar versus China’s currency. It didn’t happen in 2025, but some forecasters, including Goldman Sachs, say it is a wild card to watch in 2026.
Economic logic suggests a lower dollar would be an effective way to diminish the competitiveness of Chinese goods and drive down the U.S. trade deficit, as Trump has long sought.
“You make a helluva lot more money with a weaker dollar,” the president said in July. When the dollar is strong, “you don’t do any tourism, you can’t sell tractors, you can’t sell trucks, you can’t sell anything.”
The resistance, Trump said, came from China and Japan. “All they want to do is have a weak currency,” he said, adding that the tariffs he has imposed this year would be “worth much more” with rebalancing of exchange rates.
However, the president has held back from steps to force the issue, such as labeling China a currency manipulator or taking a fee out of the interest paid to China on the U.S. government debt it holds—a suggestion made by a top White House economic adviser, Stephen Miran, before he joined the Trump administration.
For now, Chinese leaders are getting the yuan level they want. As China’s annual trade surplus rises above $1 trillion, the yuan stands at just above seven to the dollar. That makes it slightly stronger than 7.3 yuan to the dollar at the beginning of the year but still 7% weaker than five years ago.
In a free market, countries that constantly run big trade surpluses with the U.S. would be flooded with extra dollars beyond what they needed to buy imports. Just like a grain market flooded with supply after a bumper crop, the price of the dollar would fall against the local currency—until, perhaps, a balance in trade was restored and the flood ebbed.
In reality, Beijing keeps currency fluctuations within a tight range. The Chinese government and related entities buy up some of the excess dollars and recycle them into dollar-based assets such as Treasury bonds, ensuring the yuan remains weak.
That means Chinese workers get paid less in dollar terms and their goods are more competitive. “China’s trade policy is basically set on maximizing its global export market share,” said Logan Wright, head of China market research at Rhodium Group.
China held some $3.35 trillion in officially declared foreign-currency reserves as of November, but Brad Setser, a senior fellow at the Council on Foreign Relations, estimated in 2023 that China’s total foreign assets were closer to $6 trillion when including institutions that report to the central government.
Setser recently estimated that the yuan, also called the renminbi, could be 30% undervalued against the dollar. The assessment was echoed by Goldman Sachs analyst Teresa Alves, who said this month that the yuan was some 20% or 30% undervalued, depending on the method used. Alves said a rise in the yuan in 2026 was “one of our highest conviction views.”
European Central Bank President Christine Lagarde said on Dec. 18, “Obviously, the current situation of the renminbi is one we pay attention to.”
Chinese leader Xi Jinping has long seen the country’s manufacturing might as the foundation of its great-power status, but some in China are arguing that real greatness means having a powerful currency such as the dollar today or the pound in Britain’s imperial days. Several influential economists have recently argued that a meaningful strengthening of the yuan would turbocharge consumption and get China out of its economic doldrums.
Liu Shijin, a longtime top economic adviser to the government, said in a speech this month that the U.K. and U.S. also started out as primarily manufacturing powers with puny currencies but eventually matured beyond that stage.
Liu cast an envious eye toward Trump’s ability to make the world shudder over U.S. tariffs, which he said was the result of dollar-wielding American consumers’ buying power. Liu said that the whip hand rightfully belongs to China, since its population gives it a potential consumer market “far exceeding the U.S.”
“We should aim for a basic balance between imports and exports” and push for a strong, globally used currency, Liu said.
“Chinese consumers can use the same amount of renminbi to enjoy more high-quality, affordable international products, thereby truly realizing the goal of becoming a strong consumer nation,” he said.
His comments echoed those of a former People’s Bank of China official, Sheng Songcheng, who said in November that the correct exchange rate to balance the purchasing power of Chinese and American consumers might be as strong as five or even four yuan to the dollar instead of seven today.
Such views are spreading widely among economists in China but haven’t become official doctrine, and resistance to strengthening the yuan quickly remains high in Beijing. China remembers the 1985 Plaza Accord, when the U.S. and European allies drove the Japanese yen to double its value in a few years and inflated a bubble that left Tokyo with a decadeslong hangover.
Rhodium’s Wright said economists in China were speaking out more boldly because they were having trouble tackling entrenched interests.
“The problem is that the choices now are just so fundamental,” Wright said. “Breaking away from the previous growth model requires a very sharp slowdown in growth.”
Grace Zhu in Beijing contributed to this article.
Write to Peter Landers at Peter.Landers@wsj.com