Trump Tariffs & Crypto Impact
On his first day in office, Donald Trump failed to declare the increased duties on foreign goods that he had promised to implement.
Global stock indices, cryptos, and important foreign currencies versus the dollar saw relief rallies as a result.
Over the next four years, Trump’s policy choices will influence the worldwide economy and the direction of global markets, including cryptocurrencies.
A 25% tariff on Canadian and Mexican goods and a 10% charge on Chinese imports will go into effect in February, according to Trump’s revised tariff plans, which initially did not include tariffs in his raft of executive orders.
It was also announced that a new government organization called the “External Revenue Service” would be established to collect all customs, duties, and income from foreign sources.
Trump informed reporters at the White House that tariffs on Mexico and Canada might be implemented as soon as next month. He further stated his desire to reduce the US trade gap with the EU by increasing energy exports from the US or imposing tariffs.
While campaigning, the president suggested imposing a 60% tariff on products manufactured in China and a 10% tariff on foreign imports. Trump’s initiatives, including tariffs, tax reductions, and mass deportations, may potentially contribute to inflation.
If US inflation persists at a high level or begins to increase again, the Fed will be less inclined to reduce interest rates.
That will weigh on risk assets, including cryptos, as it did in December after the Trump trade rally.
Trump Policies: A Double-Edged Sword for Cryptos?
Trump’s crypto plan faces tension: tariffs on Chinese goods may raise mining costs, but clear U.S. regulations could still boost the sector
Although the cryptocurrency market had a strong start to the year, the volatility has undoubtedly returned due to Trump 2.0.
Tariffs are financial instruments that increase import duties, resulting in higher costs for imported goods and risking business disruption worldwide.
Tariffs are recognized for their influence on the global financial trade environment and, consequently, on fiat currency; nevertheless, they also affect the cryptocurrency market.
As tariffs rise, the cost of importing goods into other nations escalates, resulting in decreased imports, which benefits domestic enterprises.
The consequence for consumers is that total living expenses will more than double due to rising goods prices under stagnant demand, which will constitute inflation.
Imposing tariffs may lead to trade disputes, resulting in economic uncertainty.
The dollar rose following Trump’s tariff threats, while the currencies of impacted nations, such as China, Canada, and Mexico, experienced a modest decline.
Historically, financial markets have reacted negatively to economic strain caused by America’s trade spat with China and previous instances of inflation.
Amidst this uncertainty, traders will depend on alternative assets to Bitcoin and other crypto tokens, even as the new administration is pro-digital assets.
One rationale is to mitigate the volatility of conventional assets, which trading would undoubtedly affect.
Despite its detrimental effects on the national economy, inflation is correlated with the growth of Bitcoin.
For instance, the U.S.-China trade war from 2018 to 2020, during which the US hiked tariffs on technology, particularly electric vehicles imported from China, ultimately caused a surge in Bitcoin prices as investors sought to safeguard their assets from market volatility.
Boost to Stablecoins Backed By the Dollar
Trump bars CBDCs, backs dollar-pegged stablecoins to secure US dominance, aligning government with firms like Tether and Circle for global crypto leadership
However, that seems to be in the past, as Bitcoin has a stronger correlation to the tech-heavy Nasdaq stock index.
A sell-off in risk assets like stocks is likelier to weigh on cryptos simultaneously and hit flows into crypto ETFs.
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