China, Japan, South Korea mull currency swap deal to mitigate Trump tariff impact

China is exploring the establishment of a trilateral currency swap agreement with Japan and South Korea.

The move is aimed at strengthening regional financial cooperation and reducing dependence on the US dollar as trade tensions with Washington escalate.

The proposal, currently under discussion among financial officials, would allow the three major East Asian economies to exchange and settle trade in their own currencies, thereby insulating their markets from external shocks and potential sanctions.

The initiative comes as US tariff threats under President Donald Trump’s trade agenda weigh heavily on East Asia’s export-driven economies.

Washington’s protectionist stance and its push to repatriate manufacturing have disrupted long-established supply chains, prompting regional powers to seek greater financial autonomy and cooperation.

By expanding currency swap lines, Beijing hopes to stabilise liquidity flows, facilitate regional trade, and promote wider use of the yuan in cross-border transactions.

For years, China, Japan, and South Korea have maintained complex and often strained relations, marked by territorial disputes, wartime history issues, and economic competition.

Diplomatic mistrust and political sensitivities have long impeded deeper regional cooperation, even as their economies became increasingly intertwined.

Yet, the mounting trade and geopolitical pressures from the United States appear to be fostering a new sense of pragmatism among the three nations.

Economic Ministers from the three countries met earlier in the year, the first meet in five years, at the height of President Trump's tariff war to discuss efforts to mitigate its impact.

Analysts say the proposed currency swap reflects a strategic convergence born out of necessity.

Faced with a volatile global environment, the three countries are finding common ground in safeguarding their economic stability and regional influence.

The arrangement would not only provide a buffer against exchange-rate volatility and capital flight but also signal a collective step toward financial independence from the dollar-centric system.

For Beijing, the plan aligns with its ambition to internationalise the yuan and enhance its role in regional finance.

Tokyo and Seoul, while cautious, recognize the potential benefits of a more balanced financial framework that can mitigate risks from future trade disputes.

If realised, the trilateral currency swap would mark a significant shift in East Asia’s economic landscape by transforming former rivals into collaborators under the shadow of US trade pressure.

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