Recent inflation data has shown improvement, but cryptocurrencies have not responded positively. Despite lower inflation figures over the past two months, concerns about tariff impacts leading to larger issues persist, even with declining oil prices. A deeper examination of the realities between China and the United States reveals significant implications.
Understanding U.S. Inflation and Tariffs
The most immediate consequence of tariffs is inflation. Federal Reserve members are beginning to imply that the effects of tariffs will not be limited to a one-time event but could lead to larger problems. In addition to a 104% tax on China, a 21% retaliatory penalty has been introduced, while a fixed 10% tax and a 90-day pause were implemented for other countries, excluding special tariffs for Canada and Mexico.
American consumers will inevitably face price hikes on imported goods. The U.S., heavily reliant on over $400 billion in imports from China, faces substantial challenges. Sellers have rapidly increased prices on Chinese products by up to 70% for American consumers.
Worse still, concerned sellers fearing the unsustainable nature of tariffs are planning to exit the U.S. market entirely, focusing instead on alternative markets. The rising yuan offers a competitive export advantage, allowing China to sell products to alternative countries that it cannot sell to the U.S.
Why Are Cryptocurrencies Under Pressure?
Trump’s call to relocate production to the U.S. lacks a magic solution. The process of moving factories, establishing operations, and delivering attractive prices for local consumers seems implausible, especially if inflation remains weak.
Sellers can mitigate risk by producing in countries not facing sanctions, shipping their goods to the U.S. However, Trump could suddenly implement measures to hinder indirect Chinese imports.
So, when will cryptocurrencies rise? A crucial factor is the need for reports of dialogue between China and the U.S. to ease market fears about recession, inflation, and unemployment. The 90-day pause for countries outside China has also stifled market declines, but an upward trend will require positive developments.
The Chinese Ministry of Commerce recently stated:
“If you want to talk, the door is open, but dialogue must be based on mutual respect and equality. If you want to fight, China will fight to the end. Pressure, threats, and extortion are not the right way to deal with China.”
