Below is a guest article by Agne Linge, Head of Growth at Wefi.
Over the past few months, the crypto industry has celebrated the obvious custody turnover in the US regulatory space. Optimism is well established. The US President has his own meme coin and the SEC has already vowed to lower the code enforcement.
Under Trump’s term, the Securities and Exchange Commission is also implementing SAB 122. This is said to pave the way for the adoption of cryptography. It also has a strong push to Bitcoin Reserves not only in the US but also worldwide.
Despite this optimism, last week revealed a wealth of clarity that codes are more vulnerable to macroeconomic factors than ever before. On the day President Trump announced tariffs in China, Canada and Mexico, the crypto market lost $2 billion, according to Coinglass data.
Some experts have shown that the original liquidation exceeded $10 billion. This is far worse than liquidation during FTX Fallout. Factors such as “buy rumors and sell news” could have been played in the crypto market.
At this point, there is a brief suspension on the implementation of the tariffs as Trump has agreed to postpone the Canada and Mexico tariffs up to a month. If implemented, these tariffs could increase the risk of a recession by shrinking consumer spending and increasing economic uncertainty.
Tariffs as a catalyst for economic shrinkage
Duties act as a tax on imported goods. Their intended purpose is to protect domestic industries by making foreign products relatively expensive. However, this protectionism comes at a cost. When tariffs increase the price of a product, consumers tend to reduce their spending.
Consumer spending drives around 68% of US GDP, so a sustained decline in consumption can drive overall economic activity below the required threshold to avoid a recession.
Also, employment on all sides will be a huge hit. The 25% tariff discussed could result in 0.25% unemployment in the US. The opposite side’s impact will be much greater as both Canada and Mexico are projected to see job losses of up to 3%.
In my view, these tariff levies can have serious ripple effects. Deutsche Bank analysts also maintain tariffs on Canada and Mexico, claiming that two of the US’s biggest trading partners are “a much larger economic scale” than the UK’s Brexit impact. It’s claiming.
Given the weight of consumer spending in the US and the sensitivity to changes in trade volumes in these neighbouring economies, if a 25% tariff is implemented, it is likely that Canada and Mexico will be in a recession in the coming months. It is not an exaggeration to predict that there is.
Trade war escalation and its broader impact
Many stakeholders expected these moves to undermine international trade flows, increase production costs and raise prices across the board. As domestic and international companies challenge supply chain coordination, the uncertainty associated with such policy changes could further curb economic activity.
Last week, Crypto Markets witnessed the volatility caused by these policies. When Trump agreed to postpone tariffs in Canada and Mexico up to a month. Bitcoin prices have been recovered from $92,000 to over $100,000.
However, the relief was short-lived when China retaliated with its own tariffs and the cryptocurrency price was withdrawn to around $96,000 within hours. This rapid on-off dynamic highlights how a market has become sensitive to tariff-related news.
Inflation risk and the Federal Reserve dilemma
Federal Reserve officials have also expressed concern about the possibility of massive tariff inflation. We have stopped explicitly linking these policies to future monetary policy decisions, but the warning is important.
Previous Federal President of Chicago Austan Ghoolsby has expressed numerous supply chain threats regarding the implementation of tariffs. Tariffs increase import costs and inflation accelerates when these costs are passed on to consumers.
This scenario is bothering given that inflation could erode actual revenues and exacerbate the pressures of a recession by reducing overall consumer spending. The Fed’s dilemma is acute.
On the one hand, central banks are trying to control inflation by tightening monetary policy.
However, an overly positive attitude towards interest rates could exacerbate the negative effects of a tariff-induced economic slowdown.
Gold remains a major safe home asset
Digital assets like Bitcoin have struggled to maintain stability amid growing trade tensions, while traditional safe haven assets have experienced a new surge in demand. Gold reached an all-time high on February 3rd, according to Kobeissi Letter data.
Gold price rally reflects investors’ instincts to seek evacuation amid rising market volatility and inflationary pressures. The dynamics behind this shift are rather simple. Investors are wary of the long-term economic outlook as tariffs push consumer prices and undermine global trade.
The risk of a recession and the potential for further financial tightening make gold a compelling asset attractive.
Looking ahead
The next few weeks prove to be decisive. If the US continues this aggressive tariff imposition path without achieving meaningful trade concessions, strengthening inflation and sustainable market volatility may be very common.
At the same time, we were able to predict the onset of recessions in our major partner economies. Policymakers and investors alike recognize that the costs of trade protectionism go far beyond the immediate realm of international commerce.
Eventually, some may argue that these tariffs can ultimately force renegotiation of terms of trade, but the evidence shows that recession risks, consumer confidence and global liquidity This suggests that the risk of accompanying damage to the site is too great to ignore.
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