The Market Fallout: How Trump’s Tariffs Are Reshaping The Global Markets

The financial markets are in turmoil following Donald Trump’s sweeping new tariffs. The crypto market has taken a severe hit, with over $2.21 billion in liquidations in a single day.

What’s Happening?

Donald Trump has imposed a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese goods. This aggressive trade policy is already shaking global markets, triggering a risk-off sentiment that’s hitting speculative assets like crypto the hardest.

Why did Trump do this? Turns out, the US trade deficit has almost doubled over the last decade.

In retaliation, Canada announced a 25% tariff on US exports, while Mexico is currently considering some tariffs of their own. However, the fact remains that they are far more reliant on US trade.

77% of Canada’s exports and 83% of Mexico’s exports go to the US, while US exports to both nations account for only 30% of its total exports. This limits the effectiveness of their response, though US industries reliant on cross-border trade—especially agriculture and automotive—will feel immediate pressure.

China is the bigger risk. The US imported $400 billion from China in 2024 but exported just $130 billion, highlighting a massive trade imbalance. With ongoing tensions in AI and semiconductors, tariffs could escalate into broader economic conflict. 

Bloomberg estimates tariffs will raise the US average tariff rate from 3% to 10.7% and cut 1.2% off GDP, signaling real economic fallout if tensions continue.

How Tariffs Affect The Market

Tariffs introduce economic uncertainty, drive up inflation, and can lead to tighter monetary policy. This creates a challenging environment for risk assets like crypto and equities.

Inflationary Pressure & Monetary Policy Response

One of the biggest concerns is that tariffs drive up prices, making inflation more persistent. If this happens, the Federal Reserve may have to keep interest rates higher for longer, delaying any potential rate cuts.

• Higher tariffs = Increased costs for businesses = Higher consumer prices

• Inflation concerns = Fed keeps rates high = Tighter liquidity for markets

• Tighter liquidity = Less capital flowing into speculative assets like crypto

This scenario is particularly bearish for crypto, as digital assets thrive in low-rate, high-liquidity environments.

Risk-Off Sentiment & Liquidity Crunch

When markets face uncertainty, investors flock to safer assets like cash, bonds, and gold, pulling money away from riskier investments.

• A stronger US dollar historically weakens Bitcoin and crypto, making it less attractive for investors.

• With less liquidity in the system, speculative markets become more volatile and prone to steep sell-offs.

• The crypto market’s heavy leverage means long squeezes, like the one we just saw, can cascade into further price drops.

Supply Chain Disruptions & Corporate Earnings

Tariffs disrupt global supply chains, forcing companies to pay more or relocate manufacturing. While this process takes time, the short-term consequences can be severe:

• Increased costs for businesses that rely on imports (tech, auto, and manufacturing sectors are particularly vulnerable).

• Lower corporate earnings = Weaker stock prices.

• Investors de-risk portfolios, pulling money from equities, bonds, and crypto.

Lessons from History: What Past Tariffs Tell Us

Markets have faced tariff-driven downturns before. Here’s what history tells us:

1️⃣ Trump’s 2018-2019 China Tariffs

• S&P 500 dropped ~20% in late 2018 as the trade war escalated.

• Bond yields spiked due to inflation fears.

• The Fed cut interest rates in 2019, leading to a market recovery.

2️⃣ Smoot-Hawley Tariffs (1930s – The Great Depression)

• US imposed tariffs on 20,000+ imported goods.

• Global trade collapsed by 60%, worsening the recession.

• Unemployment skyrocketed.

3️⃣ Steel & Aluminum Tariffs (2018)

• Steel stocks initially surged, but broader industries (auto, construction) suffered due to rising costs.

• S&P 500 dipped ~8% but rebounded as markets adjusted.

What Happens Next?

Historically, tariffs have served as a powerful negotiating tool for the US to secure better trade agreements. The Phase One Trade Deal with China, for example, resulted in stronger intellectual property protections, greater access to Chinese markets for US firms, and a commitment to boost American imports by $200 billion over two years. 

Likewise, the USMCA trade agreement improved labor rights, strengthened environmental protections, and ensured that more auto parts were manufactured in North America, benefiting US workers.

Another argument in favor of tariffs is their role in curbing unfair trade practices. China’s decades-long strategy of flooding global markets with artificially cheap goods has undercut American manufacturers, particularly in steel and auto industries. 

By imposing tariffs, the US can level the playing field for domestic producers, encourage local investment, and reduce dependency on foreign supply chains. Even President Biden has acknowledged this issue by implementing targeted tariffs himself.

So, let’s sum up the short-term and long-term impact.

In the short term, market volatility is likely to continue.

• The S&P 500 could see further dips as investors price in the economic impact of tariffs.

• Crypto markets may struggle with continued liquidity squeezes and a risk-off sentiment.

• If inflation spikes, the Fed may delay rate cuts, keeping pressure on speculative assets.

Long-term, the outcome depends on several factors:

• If the Fed intervenes with monetary easing, markets (including crypto) could rebound, as seen in 2019.

• If trade tensions escalate into a full-blown global trade war, economic growth could slow significantly.

• A prolonged strong US dollar would likely hurt Bitcoin and other risk assets in the near term.

Update

• Canada and Mexico tariffs have been postponed by a month.

• China has countered by imposing 15% tariffs on coal and gas imports from US.

Final Thoughts

Trump’s tariffs have triggered a major market reaction, with global equities and crypto taking a hit. The key factor to watch now is inflation and whether the Fed responds with monetary easing.

For crypto investors, this is a critical test of Bitcoin’s resilience as an inflation hedge and safe-haven asset. If the dollar continues to strengthen, expect further downside before stability returns.

The next few weeks will be pivotal. Staying cautious and managing risk is essential. The Coiners community is here to help. Our team of experts and market veterans provides in-depth research and real-time insights to guide your trades.

With markets this unstable, you can’t afford to go in blind. Get the expert guidance you need—join The Coiners now and take control of your portfolio before it’s too late.

While you are it. Join our Telegram channel as well to access valuable crypto alpha.