Trump has taken one of the biggest steps in recent history, venturing into uncharted territory for the modern economy. The timing was poor as the Fed had just begun to lower interest rates, and conditions were ripe for a surge in cryptocurrencies. This raises questions about the potential end of the global trade crisis, or even war, and its effects on cryptocurrencies.
Global Trade Crisis and Economy
There is a significant issue where the U.S. consistently shows deficits, while the EU, led by Germany, and China benefit immensely from the existing system. The U.S. also registers manufacturing deficits, making the removal of this imbalance necessary. Not only are the consequences of this imbalance economic, but political as well, with even Democrats supporting tariffs against China. Politically, this imbalance contributed to Trump being elected for a second term and signaling his intentions for a third.
Economic power plays a critical role in terms of relationships and dominance with other countries. If the U.S. loses this, its global influence will diminish. Hence, the second result of this imbalance involves international relations. A third concern is the unsustainable progression of internal debt towards a disaster scenario, as indicated by the Trade Secretary.
The post-war narrative of “globalization” was anchored by global macroeconomic alignment and international monetary system functionality. Initially, the U.S. had substantial current account surpluses, converted into credits, until 1971. However, the rapid rise of China and the growth experienced by players like Japan and Germany made the situation more challenging for the U.S.
In summary, the unsustainable economic structure appears to be necessitating a substantial transformation.
Effects on Cryptocurrencies
The remedy isn’t straightforward, but the U.S. claims to be taking stabilization steps. What should be done? Mainly, countries that have benefited from the system for decades, like China, need to make sacrifices. For instance, China could relocate production of certain brands and products to the U.S., stimulating domestic demand and fulfilling its role.
The EU could sacrifice its long-standing surplus by increasing imports, effectively offering its “sacrifice” as Trump puts it. The UK and others follow suit. This is exactly what Trump articulates.
What about the U.S. becoming unreliable? Facing a block centered around China? We’ll see what this transforms into over the coming months. Saturday marks the start of negotiations with China, which is promising for cryptocurrencies.
If there is a resolution, a new era extending several decades might commence. However, if the U.S. does not achieve its goals, we’ll witness the emergence of small blocks with weakened growth, a new economic model. Globalization will be heavily impacted, leading to its demise, and regionalization will take root.
In a context of weakened global growth, cryptocurrencies may experience further decline because demand for risky assets wanes when money is tight.
However, if the transition to the new era is smooth, money will become abundant, and global demand in risky markets will rejuvenate, especially with Trump backing crypto. Hence, tariffs hold much more significance than they appear.
