In early February 2025, U.S. President Trump announced new tariffs on Canada and Mexico, and the crypto asset market immediately "plummeted". This wave of decline sparked heated discussion: How exactly do government trade policies impact these crypto assets that were originally meant to be "independent"?

This article will take you on an exploration to see how tariffs are "linked" to crypto asset prices and the underlying mechanisms.

What is a Tariff?

Simply put, a tariff is the "toll" a country charges on imported goods and services. When a country imposes a tariff on a specific imported good, the importer must pay extra money to that government. This additional cost is often ultimately passed on to consumers, making things more expensive.

Governments collect tariffs primarily for these reasons:

• To "Make Money" for the Government: Before income tax became popular, tariffs were a major source of government revenue.
• To Protect Domestic Businesses: By making imported goods more expensive, people are more likely to buy products made in their own country.
• To "Negotiate Terms": Countries use tariffs to negotiate trade deals, seek favorable conditions, or pressure other countries to change policies.
• To Balance Imports and Exports: If a country buys significantly more than it sells, it might impose tariffs to reduce this "trade deficit".

Don't be fooled by the seemingly simple nature of tariffs - their economic impact is complex, affecting the value of money, stock market fluctuations, spending habits, and even how countries manage their monetary policies.

How do Tariffs 'Stir Up Trouble'?

To understand how tariffs affect crypto assets, you first need to understand how they operate in the economic system. Once a government announces tariffs, the process begins:

• Announcement: The government declares which imported goods or services will be taxed, with rates typically calculated as a percentage of the goods' value.
• Collection: When these taxable goods enter the country, importers must pay customs fees.
• Price Increase: Importers certainly won't absorb this cost themselves; they'll add it to the product price, making it more expensive for consumers.
• Consumer Choices: Seeing imported goods become more expensive, consumers might buy domestic alternatives or simply purchase less.
• Chain Reaction: Changes in consumer habits impact domestic producers, and industries related to these sectors are also affected, ultimately causing broader economic shifts.

For example, if the U.S. imposes a 25% tariff on imported steel, American buyers would pay 25% more for foreign steel. U.S. steel manufacturers would be delighted, as their steel becomes more competitive. However, U.S. companies using steel as a raw material might suffer due to increased costs.

These economic changes don't occur in isolation. Financial markets react to tariff announcements based on expectations about corporate profits, economic growth, inflation, and potential retaliatory measures from other countries.

How Did Tariffs Affect Traditional Financial Markets in the Past?

Traditional financial markets have a well-documented history of responding to tariff policies. Looking at past examples can help us understand how the crypto asset market might react.

• Stock Market Like a Roller Coaster: Once important tariff policies are announced, the stock market usually becomes highly volatile. During the US-China trade friction of 2018-2019, the S&P 500 index experienced several significant single-day drops whenever new tariff information emerged. Industries directly affected by tariffs, such as manufacturing, agriculture, and retail, typically experience the most severe stock price fluctuations.
• Currency "Changes Face": Tariffs often lead to changes in the value of currencies from different countries. If a country collects many tariffs, its currency may appreciate in the short term because demand for foreign goods decreases. However, if other countries retaliate by imposing tariffs, the initially tariff-imposing country's currency may depreciate because its goods become difficult to sell.
• For instance, during the 2018 trade war, the RMB depreciated against the US dollar, which to some extent offset the impact of US tariffs on Chinese export goods, making Chinese products relatively cheap even after tariffs were added.
• Bonds Become a "Safe Haven": During trade disputes, government bonds considered relatively safe become more popular as people rush to "hedge". This typically leads to a decrease in bond yields for countries perceived as economically stable.
• Prices May Rise: Tariffs directly increase the cost of imported goods, potentially causing price increases and inflation. This might prompt central banks to take measures such as raising interest rates to control inflation - an action that usually impacts all financial markets.

By understanding the historical market responses to tariffs, we can better predict potential reactions in the crypto asset market.

How Might Tariffs Affect the Crypto Asset Market?

The relationship between tariffs and crypto asset prices is quite complex and continuously evolving. Although crypto assets were initially designed to escape government policy control, increasing evidence suggests that crypto assets are not entirely immune to macroeconomic influences.

Recent Market Responses

As mentioned earlier, when President Trump confirmed new tariffs on Canada and Mexico in late February to early March 2025, the crypto asset market experienced a decline. Although the information was released on February 1st, its actual implementation was delayed until March 4th.

As soon as the news broke, Bitcoin's price noticeably dropped, triggering a series of market liquidations. This indicates that despite crypto assets' initial intention to be independent of government influence, investors are increasingly considering traditional macroeconomic policies when making trading decisions.

Trump claimed that the US was being "taken advantage of" in trade, which prompted the tariffs. However, the market's immediate response reveals that crypto asset investors have become highly sensitive to these macroeconomic policies.

Potential Influence Channels

Tariffs might affect crypto asset prices through the following channels:

• Worsening Risk Sentiment: Tariffs bring economic uncertainty, making investors feel the risk is too high and hesitant to hold assets they consider risky like crypto assets, thus choosing to sell. While some hope Bitcoin could function like "digital gold" during economic turbulence, market performance suggests many still treat it as a high-risk asset, selling at the slightest sign of trouble.
• Strong Dollar, Weak Crypto: Historically, Bitcoin and many other crypto assets' price trends seem to somewhat "oppose" the US dollar. If tariffs strengthen the dollar in the short term, crypto asset prices often decline.
• Reduced Global Capital Flow: Trade restrictions might lead to decreased global economic activity and capital movement. When money in the financial system reduces, speculative investments like crypto assets might see reduced demand.
• Potential Increase in Mining Costs: For crypto assets like Bitcoin that require "mining", if countries impose tariffs on computer hardware (especially professional ASIC mining chips), mining costs could directly increase. Miners might become unprofitable and shut down, potentially reducing Bitcoin network security and indirectly affecting its price.
• Potential Stricter Government Regulation: During tense trade relations, governments typically implement stricter regulations across various domains. Investors might worry that countries engaged in trade wars could subject crypto assets to more rigorous control.

Different Crypto Assets, Different Responses

Different crypto assets might respond differently to tariffs:

• Bitcoin: As the largest crypto asset by market cap, and with increasing institutional investment, Bitcoin is becoming more like a traditional risk asset during market downturns. This means that if trade tensions escalate, Bitcoin's price might decline.
• Stablecoins: Stablecoins pegged to legal currencies like the US dollar might become more popular during trade disputes, as traders might want to hold price-stable assets while remaining within the crypto asset market for easy re-entry.
• Utility Tokens: Crypto assets related to specific blockchain applications might be more directly influenced by tariffs' impact on their respective industries rather than overall market sentiment.

Summary

The relationship between tariffs and crypto asset prices represents an interesting intersection of traditional economic policies and emerging financial technologies. Although crypto assets were initially designed to be independent of government monetary policies, market evidence increasingly shows they are still influenced by macroeconomic forces, including trade policies.

The market's response to President Trump's announcement of additional tariffs on Canada and Mexico in February 2025 is a clear example. Therefore, crypto asset investors should closely monitor global macroeconomic policies. While crypto assets have many unique advantages compared to traditional assets, they remain part of the global financial system and are sensitive to global macroeconomic policy changes.