Trump's Trade War Drive Bitcoin Down But Strengthen Its Long-term Position
Trump has started another round of trade wars. The new tariff order has taken effect: 25% against Mexico and Canada, and 10% against China. The official justification? Fentanyl smuggling into the US. Canada and Mexico are rolling out retaliatory tariffs, while China plans to file a WTO complaint.
The impact was immediately felt in financial markets. Accroding to Coindesk report, Bitcoin dropped 8% to $93,100 by mid-morning Hong Kong time, while other major cryptocurrencies saw even steeper declines - Ethereum fell 20% below $2,500, and XRP dropped 23%. World Liberty Financial's recent crypto investments lost over $51.7 million, representing a 21% decline. The market turbulence led to massive liquidations, with $1.3 billion in long positions wiped out in just 12 hours.
However, Bitcoin's short-term volatility might be less significant than the long-term trend toward deglobalization and fragmentation of the global financial system. As trade wars intensify and countries seek alternatives to traditional payment systems, Bitcoin stands to become one of the winners. The current dip might present an entry point for those focusing on these long-term structural changes in global trade and finance.
Worth noting that while Trump promised 60% tariffs on China, that's still under review. He's also threatened tariffs against the EU and a general import tariff for all US-bound goods.
Free trade advocates warn about rising prices in the US, arguing importers will pass tariffs on to consumers. They're right, but tariffs serve two purposes: they can act as either a tax or a barrier to promote domestic production.
Trump clearly aims to make importing goods from Canada and Mexico less profitable than manufacturing them in the US. While Mexico has the advantage of cheaper labor, there's little economic rationale for importing finished goods from Canada rather than raw materials. Both Canada and Mexico run large trade surpluses with the US - they export more than they import, effectively drawing money out of the US economy. Trump wants to change this pattern.
Free trade supporters correctly predict short-term price increases, but Trump's betting on better long-term results. If protectionist measures stay in place, Canadian companies serving the US market might simply move their operations to the US. This could eventually benefit Americans as money stays within US borders. As for Canada - they had their chance to become the 51st state, and their refusal has consequences.
The 10% China tariffs serve a different purpose - they're more about raising revenue than protecting US manufacturers. Trump wants to reduce government debt and the budget deficit, which requires funding. While 2022 set a record with $100 billion in tariff revenue, Trump's new tariffs could bring in an additional $110 billion - and that's before any EU tariffs.
The EU's position is particularly weak - drained by the US-led confrontation with Russia, struggling with high energy costs after losing access to cheap gas, and held back by their slow-moving political system. Their response will likely be limited to strongly-worded statements of condemnation.
The US can pursue this strategy because it offers the world's largest and most profitable consumer market. Even with tariff barriers, access to US consumers remains highly desirable.
It's remarkable that barely a week into his presidency, Trump has targeted Canada, Denmark, and Panama rather than China or Iraq. He's following through on campaign promises with concrete action. His decisiveness here makes me curious about his plans for Greenland and the Panama Canal. We'll see how successful Trump's strategy proves - his first-term trade wars with China weren't clearly successful.
Conclusion
While today's Bitcoin price drop reflects market fears, Trump's trade war could boost Bitcoin long-term. As US tariffs increase costs of American market access, both sides face challenges: countries need to protect against trade and finance restrictions, while companies need efficient ways to handle cross-border transactions under new tariff pressures. Bitcoin solves both problems by providing a neutral, efficient payment network outside traditional banking constraints.
