Tariff policy content

On April 2, local time, Trump signed two executive orders at the White House regarding the so-called ‘reciprocal tariffs,’ a decision that instantly stirred up waves in the global markets. The executive orders stipulate that the U.S. will establish a 10% ‘minimum benchmark tariff’ for trading partners, which will officially take effect at 12:01 a.m. Eastern Time on April 5, like a drawn sword, making global trade participants nervous. Even more impactful, for countries with significant trade deficits with the U.S., the Trump administration will impose higher ‘reciprocal tariffs,’ which will take effect at 12:01 a.m. on April 9, undoubtedly further exacerbating market uncertainty.

Image source:https://china.chinadaily.com.cn/a/202504/03/WS67edbd83a310e29a7c4a771f.html

In recent years, the evolution of the U.S. economic landscape and the tense international trade relations have laid the groundwork for Trump’s tariff policy. For a long time, the U.S. has faced significant trade deficits in international trade, a situation that has been a thorn in the side of the Trump administration. Trump upholds the concept of ‘America First’ and firmly believes that the U.S. is at a disadvantage in the global trading system. He sees the high tariffs imposed by other countries on American goods as a key factor leading to the continuous expansion of the U.S. trade deficit. He believes that the U.S. has been subjected to ‘unfair’ trade treatment and ‘exploited’ by other countries.

As early as the first term of Donald Trump, his tendency towards trade protectionism was evident. At that time, he frequently implemented unilateral trade measures under the banner of ‘America First,’ trying to protect domestic manufacturing through tariff barriers. In 2018, he signed an executive order imposing tariffs on imported steel and aluminum products in an attempt to win support from voters in the ‘Rust Belt.’ Although this move ultimately led to an increase in costs for the U.S. manufacturing industry, a decrease in exports, and did not truly enhance the competitiveness of domestic manufacturing, it laid the groundwork for his tough stance on trade policy.

The ‘reciprocal tariff’ policy is actually a continuation and escalation of Trump’s trade protectionism concept. On February 13 local time, Trump announced the imposition of ‘reciprocal tariffs’ on U.S. trading partners, stating that he would consider imposing tariffs on countries using value-added tax systems. Its core purpose is to ‘reduce the huge and persistent trade deficit in goods’ and address ‘other unfair and unbalanced trade issues’ with foreign trading partners. The specific content of this policy includes three aspects: first, ‘reciprocal tariffs’ at the national level, i.e., if a country imposes a 100% tariff on U.S. goods, the U.S. will impose a 100% tariff on that country’s goods; second, ‘reciprocal tariffs’ at the product level, where the U.S. will impose tariffs on trading partners’ products one by one, for example, the U.S. imposes a 2.5% tariff on cars from the European Union, but the EU imposes a 10% tariff on cars from the U.S., once ‘reciprocal tariffs’ are implemented, the U.S. will raise the tariff on imported EU cars to 10%; third, ‘reciprocal tariffs’ at the non-tariff barrier level, which is more complex and involves value-added tax and other content.

However, once this policy was proposed, it caused a huge stir in the international community. U.S. allies such as Canada, Germany, and Japan have all clearly expressed their opposition, fearing that this tariff measure would disrupt the multilateral trading system, hinder global economic development, and ultimately lead to huge losses for both the U.S. and its trading partners. On February 20 local time, Chinese Ministry of Commerce spokesperson, Hua Chunying, urged the U.S. not to easily wield the ‘tariff stick,’ emphasizing that there is no way out in a tariff war and there will be no winners. The U.S. should solve the problem through equal consultations. Despite facing many opposing voices, the Trump administration continues to push forward with this policy. This series of decisions further intensifies the global market’s uncertainty and puts the cryptocurrency market at the forefront of this economic policy storm.

Cryptocurrency Price Volatility

Upon the announcement, global financial markets quickly plunged into panic, and the cryptocurrency market was no exception. The inherently high-risk, high-volatility nature of the cryptocurrency market made it highly sensitive to changes in the external economic environment. Trump’s tariff policy acted as the final straw, eroding market confidence. Following the policy announcement, investors, fearing the uncertain economic outlook, began liquidating their holdings in cryptocurrencies and other risk assets, attempting to avoid impending economic risks. This mass sell-off caused a sharp drop in cryptocurrency prices.

Bitcoin, as a bellwether of the cryptocurrency market, saw a massive price drop. During the day, Bitcoin plummeted by more than $4,000, falling from $86,900 to $82,100. This significant price fluctuation not only shocked investors but also reflected the market’s extreme concern about Trump’s tariff policy. Other major cryptocurrencies, such as XRP and Solana, also saw significant declines, following Bitcoin’s lead. XRP’s price dropped substantially in a short period, and Solana was similarly hit hard, resulting in a bleak landscape across the cryptocurrency market.

Image source:https://www.gate.io/trade/BTC_USDT

Fund Flows

Looking at the fund flow data, Coinmarketcap clearly shows the severe outflow of funds from the cryptocurrency market on April 3. On that day, cryptocurrency-related ETFs saw a net outflow of $8.6 billion, with Bitcoin ETFs alone witnessing a net outflow of $8.7 billion. This data reveals that institutional investors and large amounts of capital are quickly exiting the cryptocurrency market in search of safer and more stable investment havens.

Image Source:https://coinmarketcap.com/etf/

Coinglass data further reveals the severity of the market. In the past 24 hours, the total amount of liquidated contracts in the cryptocurrency market reached 500 million US dollars (approximately 3.65 billion yuan), with over 163,000 people being liquidated. Such a massive liquidation means that many investors have suffered huge losses in this market turmoil, with many even losing everything.

The total market value of the cryptocurrency market has plummeted by 1.37% within 24 hours, with the lowest point dropping to $2.64 trillion. Although Bitcoin theoretically has certain hedging properties, speculative activities dominate in the current market environment. When economic uncertainty sharply rises, traders tend to choose traditional assets such as gold that have stood the test of time and have stable hedging functions. After Trump’s tariff policy announcement, the price of gold showed a significant upward trend, becoming the preferred safe-haven asset for investors. In contrast, cryptocurrencies such as Bitcoin, due to factors such as lack of effective regulatory mechanisms and poor market stability, have difficulty playing a hedging role in this market crisis and instead have become the main target of market sell-offs.

Investor Response Strategies

(1) Optimize asset allocation

Faced with the market volatility caused by Trump’s tariff policy, cryptocurrency investors should reassess their asset allocation. First, consider increasing asset diversification. In addition to cryptocurrencies, allocate a certain proportion to traditional safe-haven assets such as gold and government bonds. Gold has significantly risen in price after the tariff policy announcement, highlighting its hedging value. Investors can transfer some funds to the gold market, reduce overall portfolio risk by purchasing gold ETFs, etc. At the same time, diversifying investments in different types of cryptocurrencies is also crucial. Do not concentrate all funds on Bitcoin or a few mainstream cryptocurrencies, but choose some niche cryptocurrencies with different applications and technological advantages to invest in, in order to diversify risks.

(2) Strengthen risk assessment

Investors need to strengthen their ability to assess investment risks. On the one hand, they need to conduct in-depth research on the correlation between the cryptocurrency market and macroeconomic policies. Understanding how tariff policies indirectly affect the cryptocurrency market by influencing global economic growth, interest rate levels, inflation expectations, and other factors. For example, tariff policies may lead to a slowdown in global economic growth, a decrease in corporate profit expectations, resulting in reduced market risk appetite, which can have a significant negative impact on the cryptocurrency market. Investors should adjust their expectations of investment risks in cryptocurrencies based on such macroeconomic analysis. On the other hand, use professional risk assessment tools and indicators. Pay attention to volatility indicators in the cryptocurrency market, such as Bitcoin’s Bollinger Bands width, historical volatility, etc., which can intuitively reflect the market’s volatility.

(3) Pay close attention to policy dynamics and market trends

The direction of policies has a critical impact on the cryptocurrency market, and investors must closely monitor the Trump administration’s subsequent tariff policy adjustments and the introduction of related economic policies. Pay attention to policy statements released through official channels, government officials’ speeches, interpret policy intentions, and possible implementation directions. For example, if the Trump administration further expands the scope of tariff collection, or implements special trade policies for certain industries, this may trigger a new round of fluctuations in the cryptocurrency market. At the same time, pay attention to the changes in regulatory policies on cryptocurrencies by governments around the world, as the uncertainty of trade policies may prompt countries to strengthen regulation of the cryptocurrency market to maintain financial stability.