On the grand stage of the global economy, policies in one area often create unexpected ripples. Tariffs, as an old tool for regulating international trade, have long been familiar in their impact on traditional financial markets. But with the rise of the 'new player' of crypto assets, what is the relationship between trade policies and digital asset prices?
In early February 2025, President Trump announced new tariffs on Canada and Mexico, causing an immediate 'plunge' in the cryptocurrency market. This downturn sparked heated discussions: how exactly do government trade policies affect these crypto assets that initially aimed for 'independence'?
This article will take you on a journey to see how tariffs are 'linked' to crypto asset prices and the underlying mechanics.
What are tariffs?
In simple terms, tariffs are the 'toll fees' that a country charges on imported goods and services. When a country imposes tariffs on certain imported goods, importers must pay extra money to the government of that country. This additional cost often ends up being passed onto consumers, resulting in higher prices.
The government collects tariffs primarily for these purposes:
Generating revenue for the government: Before income tax became popular, tariffs were a primary source of revenue for the government.
Protecting local businesses: Making imported goods more expensive encourages consumers to buy domestically produced items.
Used for 'bargaining': Countries will use tariffs to negotiate with other nations for favorable terms or to pressure them into changing their policies.
Balancing imports and exports: If a country buys significantly more than it sells, it may impose tariffs to reduce this 'trade deficit.'
Although tariffs may seem straightforward, their economic impacts can be complex, affecting the value of money, stock market fluctuations, consumer spending habits, and even how governments manage money (monetary policy).
How do tariffs 'stir up trouble'?
To understand how tariffs affect crypto assets, we first need to know how they operate within the entire economic system. Once the government announces tariffs, things begin:
Announcement: The government states which imported goods or services will be taxed, with the tax rate generally calculated as a percentage of the goods' value.
Collecting money: Once these taxable goods enter the country, importers must pay the customs duties.
Price increase: Importers will not pay this extra cost themselves; they will add it to the product price, making it more expensive for consumers.
Consumer choices: When consumers see that imported goods are more expensive, they may turn to domestic alternatives or simply buy less.
Chain reactions: When consumer habits change, it affects domestic producers, and other industries related to these sectors will also be impacted, ultimately causing shifts in the entire economy.
For example, if the US imposes a 25% tariff on imported steel, American buyers will have to pay 25% more for foreign steel. This pleases American steel manufacturers because their steel becomes more competitive. However, American companies that use steel as a raw material may suffer because their costs have increased.
These economic changes do not occur in isolation. Financial markets respond to expectations regarding company profits, economic growth, inflation, and potential retaliatory measures from other countries in reaction to tariff announcements.
How did tariffs influence traditional financial markets in the past?
The traditional financial market's response to tariff policies has a long history of records. Looking at past examples can help us understand how the cryptocurrency market might react.
The stock market behaves like a roller coaster: once significant tariff policies are announced, the stock market often becomes very unstable. During the US-China trade frictions of 2018-2019, every time there was news of new tariffs, the S&P 500 index experienced significant single-day declines multiple times. Industries directly affected by tariffs, such as manufacturing, agriculture, and retail, typically see the most severe fluctuations in stock prices.
Currencies also 'change faces': Tariffs often lead to fluctuations in the value of currencies between different countries. If a country imposes a lot of tariffs, its currency may appreciate in the short term due to reduced demand for foreign goods. However, if other countries retaliate with tariffs, the currency of the initially tariff-imposing country may depreciate because its goods are no longer competitive.
For example, during the trade war in 2018, the RMB depreciated against the US dollar significantly, which somewhat offset the impact of US tariffs on Chinese exports, making Chinese goods relatively cheaper even with tariffs.Bonds become a 'safe haven': During trade disputes, government bonds, perceived as safer assets, become more popular as investors rush to buy for 'hedging.' This typically leads to a decline in bond yields for countries considered economically stable.
Prices may rise: Tariffs directly increase the cost of imported goods, leading to inflation. This may prompt central banks to take measures, such as raising interest rates to control inflation—an action that usually impacts all financial markets.
Having understood the historical reactions of traditional markets to tariffs, we can better speculate on how the cryptocurrency market might respond.
How might tariffs affect the cryptocurrency market?
The relationship between tariffs and cryptocurrency prices is quite complex and constantly evolving. Although the initial goal of cryptocurrencies was to escape government policy control, increasing evidence suggests that they are not completely immune to macroeconomic influences.
Recent market reactions
As mentioned earlier, in late February to early March 2025, after President Trump confirmed new tariffs on Canada and Mexico, the cryptocurrency market experienced a decline. Although this news was released on February 1, its actual implementation was postponed until March 4.
As soon as the news broke, Bitcoin's price clearly dropped, triggering a series of market liquidations. This indicates that despite the initial intent for cryptocurrencies to be independent from government influence, investors are increasingly considering traditional macro policies when making trading decisions.
Trump stated at the time that the US was being 'taken advantage of' by its trading partners, which is why tariffs were needed. However, the market's immediate reaction indicates that cryptocurrency investors are already very sensitive to these macroeconomic policies.
Possible channels of impact
Tariffs may influence the price of crypto assets in several ways:
Deteriorating risk sentiment: Tariffs can create economic uncertainty, causing investors to feel that the risk is too high and to avoid holding assets like cryptocurrencies that they consider risky, opting to sell instead. Although some hope Bitcoin can act like 'digital gold' during economic turmoil, market performance suggests that many still view it as a high-risk asset, selling off at the slightest disturbance.
Strong dollar, weak coins: Historical data shows that the price movements of Bitcoin and many other cryptocurrencies often act in opposition to the dollar. If tariffs strengthen the dollar in the short term (which can happen), the prices of cryptocurrencies typically decline.
Reduced global capital flows: Trade restrictions may lead to decreased global economic activity and capital flows. When there is less money in the entire financial system, speculative investments like cryptocurrencies may also see reduced demand.
Increased mining costs: For cryptocurrencies like Bitcoin that require 'mining,' if a country imposes tariffs on computer hardware (especially ASIC chips used for mining), the cost of mining will directly rise, potentially reducing miners' profitability, leading some to stop mining, which could lower the overall security of the Bitcoin network and indirectly affect its price.
The government may impose stricter regulations: During times of tense trade relations, governments typically enforce stricter regulations across many areas. Investors may worry that countries engaged in trade wars might also subject cryptocurrencies to stricter controls.
Different cryptocurrencies, different reactions.
Different cryptocurrencies may react differently to tariffs:
Bitcoin: As the largest cryptocurrency by market capitalization, and with an increasing number of institutions investing in Bitcoin, it has become more like a traditional risk asset during poor market conditions. This means that if trade tensions escalate, the price of Bitcoin may decline.
Stablecoins: Those linked to fiat currencies like the US dollar may become more popular during trade disputes, as traders might prefer to hold stable assets without completely leaving the cryptocurrency market, facilitating re-entry later.
Utility tokens: Those associated with specific blockchain applications may be more directly affected by tariffs on their respective industries than by overall market sentiment.
