Key Insights
- China’s Finance Ministry recently slapped a 34% retaliatory tariff on US goods in what it calls “economic bullying.”
- According to Goldman Sachs, the new tariffs will bring the total effective tariff rate between the two countries to a staggering 47.5%.
- On the other hand, if Trump follows through with his most recent threat, US companies could suffer tariff rates of more than 100% on Chinese imports.
- According to prediction markets, speculators are also feeling the heat. PolyMarket bets on a Bitcoin drop below $70,000 by year-end.
- There might be a silver lining, as the economic uncertainty could reaffirm crypto more as a safe haven asset class.
The crypto market is known for being highly volatile and independent from the traditional financial systems.
However, this has not been the case in the last few weeks, as crypto is now feeling the heat from a full-blown economic face-off.
The most recent updates come from the US, in its trade war with China.
China recently announced a 34% tariff on all US goods in retaliation to the sweeping tariffs the White House announced on Wednesday of last week.
As it stands, the US is now threatening an extra 50% tariff if China does not withdraw its tariffs by 9 April.
Here’s a breakdown of what’s happening and what it means for crypto.
The Trade War Escalates: Tariffs and Threats
US President Donald Trump sits at the center of the ongoing storm. The president recently introduced sweeping tariffs against China.
As a countermeasure, Beijing responded firmly, with China’s Finance Ministry slapping a 34% retaliatory tariff on US goods in what it calls “economic bullying.”
This rhetoric is shaping up to become one of the most brutal face-offs between countries, with both nations planting their feet for what might be a long economic battle.
According to Goldman Sachs, the new tariffs will bring the total effective tariff rate between the two countries to a staggering 47.5%.
On the other hand, if Trump follows through with his most recent threat, US companies could suffer tariff rates of more than 100% on Chinese imports.
Immediate Market Reactions
The crypto market showed strength earlier in the year, with the Donald Trump
presidential victory and his promises to relax regulations.
However, much of this optimism has faltered so far, with Bitcoin dropping by 3% after China’s announcement of retaliatory tariffs.
The general crypto market has also declined by around 2% in 24 hours.
Trump’s pro-crypto stance initially brought much optimism to investors, especially as his administration pushed back on SEC lawsuits against crypto firms.
That momentum has all but faded, as macroeconomic fears take center stage.
According to prediction markets, speculators are also feeling the heat.
PolyMarket betson a Bitcoin drop below $70,000 by year end, now carrying a 73% probability.
The Weakening Yuan, Shaky Stock Markets
More than crypto, the global financial markets have felt the heat so far.
For example, the Yuan fell to its weakest level since 2023 as China’s central bank set the midpoint exchange rate at 7.2038 per dollar.
For context, a weaker Yuan shows broader uncertainty in China’s economic outlook, and investors often use it as a tool used to offset export losses due to tariffs.
According to Robin Brooks, a senior fellow at the Brookings Institution, per CNBC , the Yuan’s devaluation is “a clear shot across the bow of Washington.”
This means that China is prepared to push back as much as it can, both economically and diplomatically.
Meanwhile, the global stock markets have been hammered alongside.
The Hang Seng Index, for example, dropped more than 13% in its worst single-day performance since 1997 on Monday.
The US’s S&P 500 index also opened lower, alongside lower prices on Europe’s FTSE 100.
Why Crypto Is Caught in the Middle?
Cryptocurrencies are decentralized. This means that they should not be caught in the middle of these issues.
However, the problem remains that they are. Over the last few years, they have become deeply intertwined with investor sentiment across asset classes.
This means that they are now more vulnerable than ever to macroeconomic trends and fiat currency flows.
Investors are pulling away from volatile assets, including crypto, especially as the uncertainty continues to mount.
The weakness of the yuan could also lead to something of a capital flight from China, but with tighter capital control.
Because of this, it will become much harder for this money to reach the crypto markets.
Finally, it seems that Trump’s attention is now focused on trade, rather than crypto innovation.
This could delay some of the crypto reforms he promised during the campaigns (promises that were responsible for the pumps to begin with).
Is There A Silver Lining?
Despite the short-term sell-off, market watchers are still optimistic.
Historically, crypto has thrived during times of monetary instability, when investors start to distrust traditional institutions.
If the trade war escalates, other sectors could suffer. However, Bitcoin and other cryptocurrencies have a chance (however slim) of re-emerging as safe havens.
Investors might become more interested in crypto en-masse, as the Yuan devaluation attracts more of them into the defi space.
Moreover, Trump’s earlier crypto promises haven’t been reversed yet.
This means that they still have a good chance of causing market pumps. Still, the dust from the US/China war needs to settle before anything of the sort happens.
What to Watch Next?
The trade war is escalating, and investors need to watch out for some major aspects of the markets.
The first of these is the Yuan’s movements. A sharp devaluation could shake the global market and renew interest in Bitcoin as an inflation hedge.
The second is a capital flight from Chinese investors as the yuan declines.
These investors might start to seek out ways to protect their wealth, and crypto could become very attractive for this (especially with prices currently at a discount).
Investors should also watch out for US regulation and institutional sentiment.
Watching how crypto funds and institutions react to the ongoing war could also be of much help.
