How Will Donald Trump’s Tariff Plans Impact The Crypto Market?

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It’s said that President-elect Donald Trump is contemplating an announcement of a national economic crisis to institute a broad tariff policy affecting both allies and rivals. This tariff plan, possibly enacted under the International Economic Emergency Powers Act (IEEPA), aims to rebalance global trade relations.

Currently, Federal Reserve Governor Christopher Waller is addressing worries regarding inflation and the possible economic effects of tariffs. This situation has sparked curiosity about how these policies could potentially impact the cryptocurrency market.

Donald Trump’s Tariff Strategy

According to CNN, President-elect Donald Trump is pondering over the International Economic Emergency Powers Act (IEEPA) as a means to impose tariffs. The proposed tariffs are aimed at readjusting global trade, with a particular emphasis on revitalizing the U.S. manufacturing industry. Trump favors IEEPA due to its adaptability, enabling quick action without requiring extensive explanations based on national security concerns.

Advocates for tariffs believe they can revitalize U.S. manufacturing and boost the economy, but there’s a question mark over how broadly these tariffs will be applied and how effectively they’ll be implemented. Such ambiguity could create waves in international finance, potentially affecting investment decisions in innovative fields such as cryptocurrency.

Donald Trump’s deputy assistant for International Economic Affairs, Kelly Ann Shaw, commented,

In my opinion, the president possesses extensive power to implement tariffs under multiple justifications. There are several legal foundations available to carry out such actions.

Federal Reserve’s Perspective on Tariffs and Inflation

Simultaneously, Federal Reserve Governor Christopher Waller has discussed the potential for inflation due to President Trump’s proposed tariffs. Waller stated that although inflation surpassed the Fed’s 2% threshold in late 2024, he remains hopeful for a gradual drop in 2025. He also mentioned that higher tariffs may not lead to prolonged inflation, as their impact could be separated from broader economic movements.

Waller stated, 

I’m open to more reductions in 2025, yet the rate of these cuts will be determined by how much progress we make in controlling inflation. I don’t anticipate that tariffs will have a substantial effect on inflation.

In late 2024, the Federal Reserve reduced interest rates by a quarter of a percentage point, hinting at further rate reductions depending on inflation levels. The forecast suggests that monetary policy may remain accommodative in 2025, potentially boosting financial markets such as stocks, bonds, and even cryptocurrencies, thereby enhancing liquidity and investment opportunities.

Implications of Tariffs on The Cryptocurrency Market

If the Federal Reserve reduces interest rates, as many anticipate, it might lead to an increase in funds directed towards the cryptocurrency market due to its potential for higher yields. Typically, such a move encourages investors with a ‘risk-on’ mentality, causing assets like cryptocurrencies to potentially see positive effects from this situation.

On the other hand, Donald Trump’s tariff measures could potentially stir up wider doubts in international trade. These uncertainties might indirectly impact the cryptocurrency market by altering global economic trust levels.

Disruptions to trading could cause people to lose trust in conventional financial methods, possibly prompting a move towards decentralized digital currencies such as Bitcoin and Ethereum. Conversely, if tariffs unexpectedly trigger inflationary pressures, the Federal Reserve may decide to halt or reverse interest rate reductions, which might dampen enthusiasm in the crypto market.

One significant cause behind the recent collapse of the cryptocurrency market is the Federal Reserve’s policies and broader economic worries. The increase in U.S. Treasury yields, coupled with a more aggressive approach by the Fed, has created an atmosphere of caution, causing investors to withdraw their funds from cryptocurrencies.

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2025-01-08 19:54