The global economy is entering a phase in which monetary policy, trade balances, and industrial strategy are increasingly shaped by geopolitical competition. Recent analyses by institutions such as the International Monetary Fund, the Federal Reserves, the Bank of England highlight how macroeconomic tools are now being deployed in support of strategic objectives. This shift is particularly relevant for the European Union, whose openness exposes it directly to the reconfiguration of global demand and great-power competition.[i]

One of the clearest manifestations of this shift can be observed in the growing tensions surrounding China’s currency management. As brilliantly explained by Brad Setser, for years, the dominant assumption was that a stronger currency for China could undermine exports at a time when external demand is crucial for sustaining growth.[ii] Exchange-rate stability was therefore treated as an economic necessity rather than a political choice. That assumption is now under strain. China’s recovery since the pandemic has relied heavily on exports, while domestic consumption has remained subdued. Foreign markets have absorbed an increasing share of Chinese output just as political tolerance for such imbalances has declined. What once appeared as a technical debate over exchange rates has evolved into a question of strategic exposure.

Chinese authorities remain committed to tight currency management, seeking to avoid large swings that could destabilize growth or trigger volatile capital flows. Yet this position increasingly collides with the strategic environment abroad. Large trade surpluses are no longer interpreted merely as macroeconomic side effects, but as manifestations of structural power. In a world shaped by industrial competition and geopolitical rivalry, persistent imbalances are viewed as sources of dependency. For several years, this contradiction was obscured by capital outflows from China. Higher U.S. interest rates, uncertainty about domestic growth, and fears of renewed trade conflict encouraged money to leave the country, offsetting upward pressure on the yuan. That phase is ending. Outflows have slowed, the surplus remains large, and —  as Setser points out —  Beijing is therefore likely to intervene more actively to manage its currency.