What Are Tariffs and Why Do They Matter?

Tariffs are taxes imposed by a country on imported or exported goods. Governments levy tariffs primarily to protect domestic industries from external competition, gain leverage in international negotiations, or increase fiscal revenue. For instance, a country might impose high tariffs on imported steel to encourage the use of domestically produced steel.​

Tariffs significantly impact the overall economy due to the following chain reactions:​

• Supply Chain Disruptions: Tariffs raise the prices of foreign goods. This forces businesses to reassess and adjust their supply chains. Companies may need to find new suppliers or bear higher costs, leading to decreased production efficiency and potentially hindering technological innovation.​

• Rising Inflation: Tariffs increase the cost of imported goods, costs that are often passed on to consumers, leading to overall price hikes. Almost all imported goods, from electronics to food, may become more expensive.​

• Eroded Confidence: Escalating tariff wars heighten market uncertainty. Consumers worry about rising living costs, while investors fear economic slowdowns. This shaken confidence can lead to stock market declines and more conservative, risk-averse investor behaviour. In other words, tariffs can tighten overall market sentiment.​

When tariff policies are introduced, you’ll hear more news about global trade tensions, rising commodity prices, and financial market volatility. The crypto market is not isolated; these macroeconomic changes also affect the performance of crypto assets in both the short and long term.

Short-Term Impact on the Crypto Market: Increased Volatility and Risk Aversion

When new significant tariff policies are announced, financial markets typically experience a wave of volatility. Despite the decentralized and independent nature of crypto assets, they often get caught up in this storm due to prevailing market sentiments of “risk-off” behavior, where investors avoid high-risk assets.

Global Market Sell-Offs

Tariff-related news often triggers sharp sell-offs in global stock markets, and the crypto market typically follows suit, driven by a broader wave of risk-off sentiment.

In the immediate aftermath of tariff announcements, global equities tend to tumble, and crypto assets often mirror the move. This reflexive sell-off stems from the fact that many investors still view cryptocurrencies as high-risk assets. During periods of heightened uncertainty, both equities and digital assets are dumped simultaneously. As investors rush to cut exposure, liquidity dries up quickly, leading to heightened volatility across the board. Notably, altcoins like Ethereum (ETH) and Solana (SOL) often bear the brunt of the downturn, suffering steeper losses than Bitcoin. These non-BTC assets tend to be more volatile and less liquid, making them more vulnerable during broad-based risk-off events.

Seeking Safe Havens: Crypto Isn’t the First Choice

During tariff-induced market turmoil, investors typically seek refuge in traditional “safe-haven” assets. This means capital tends to flow into the U.S. dollar, government bonds, or gold—rather than into crypto.

In the early stages of trade disputes, investors often exit crypto positions in favor of cash or dollar-pegged assets like stablecoins. This is because the dollar and gold are historically regarded as reliable stores of value. Even within the crypto market, traders frequently rotate into stablecoins such as USDT or USDC to ride out the volatility—effectively “waiting out the storm” until market conditions stabilize.

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Tokenized Gold and Yield Opportunities

What is Stablecoin?

It’s important to note that while Bitcoin is sometimes referred to as “digital gold,” during these initial panic phases, it isn’t always treated as a safe-haven asset. As mentioned earlier, Bitcoin often faces downward pressure during tariff-induced panic. However, its declines are usually less severe than those of other smaller cryptocurrencies, and its recovery may be quicker.​

Long-Term Benefits of Trade Conflicts for Cryptocurrencies

When a trade war or tariff standoff settles, the market may exhibit entirely different dynamics. Factors that once caused turmoil in traditional markets might highlight the advantages of cryptocurrencies. Here are some examples explaining why tariffs and trade conflicts might, in the long run, boost the development of the crypto market:

Currency Depreciation Drives Crypto Adoption

Tariffs can lead to a country’s currency depreciation, especially when trade partners retaliate or investors lose confidence in the economy. When a country’s export products become more expensive due to tariffs, its trade surplus may suffer, leading to a decline in the domestic currency’s exchange rate. Additionally, tariffs often drive up inflation, further weakening the purchasing power of the local currency.​

When people find their fiat currency rapidly depreciating, they often seek other “stores of value.” In this environment, Bitcoin and other cryptocurrencies become particularly attractive.​

A typical example occurred in Turkey in 2018: When the U.S. imposed tariffs on Turkish steel and aluminum products due to political disputes, the Turkish lira plummeted over 20% in a short period. Amid the sudden collapse of confidence in fiat currency, many Turks didn’t choose gold, the traditional safe-haven asset, but turned to Bitcoin.​

Bitcoin is often referred to as a “censorship-resistant” and “inflation-resistant” currency because no central bank or government can dilute its supply or freeze transactions. These characteristics are especially important in environments where local currencies are rapidly depreciating.

Portfolio Diversification and Institutional Entry

The uncertainty induced by tariffs is prompting more individuals and institutional investors to rethink their asset allocations.​

Stocks, commodities, and fiat currencies fluctuate sharply due to trade frictions, making people realize the importance of asset diversification. Cryptocurrencies, with their unique attributes, are gradually being seen as a hedge against geopolitical and macroeconomic risks.​

In the short term, large investors might reduce their exposure to stocks due to risk aversion; but in the long run, some investors have begun to include Bitcoin and other digital assets in their portfolios as a hedge against high inflation or prolonged low growth (which are potential consequences of trade conflicts).​

Bitcoin’s performance isn’t highly dependent on any single country’s economic fate; it has risk characteristics different from stocks or bonds. Including Bitcoin as a small part of an investment portfolio may help improve overall resilience, as its trends under certain macroeconomic conditions don’t align with traditional assets.

Final Thoughts: Short-Term Chaos, Long-Term Validation

Tariffs and trade wars undoubtedly create short-term chaos in the crypto market—prices swing wildly, sentiment takes a hit, and headlines can flip the market narrative in an instant. Yet, it is precisely within this chaos that crypto’s core value proposition shines the brightest.

Each wave of tariff-induced market turmoil seems to further validate the long-term case for cryptocurrencies. Bitcoin and other major digital assets that weather the storm often emerge stronger, drawing in new users who experience firsthand their practical utility during times of crisis.

In turbulent times, people are reminded of the value of an asset that is decentralized, borderless, and free from the control of any single nation’s policy decisions.

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