Trump’s Trade War Escalates
Bottom fishing has failed, as the market did not await good news. Early this morning, the White House press secretary announced that an additional 104% tariff on China took effect at noon Eastern Time, causing global financial markets to plunge once again.
On April 3, when Trump’s tariff policy was announced, U.S. Treasury Secretary Mnuchin had suggested that all countries refrain from retaliatory actions and wait until April 9 for any negotiations. Even a “fake news” scenario was played out, hoping for a rebound based on Trump’s potential willingness to negotiate trade barriers with multiple countries and specific products, briefly reviving global capital markets.
However, after several days of negotiations, the market did not receive good news. From an increase of 10% at the beginning of the year to 20% in March and 34% in early April, now compounded with a 50% “retaliatory markup,” Sino-U.S. trade friction has escalated into an “economic nuclear war.”
Can the Stock Market Withstand Another Trade War?
Since the Trump administration announced a new round of tariff policies last week, international capital markets have faced severe turbulence, with the U.S. stock market being the hardest hit. As of Tuesday’s close this week, the S&P 500 index fell below 5,000 points for the first time in nearly a year, having cumulatively dropped 18.9% from the high on February 19, just a step away from the 20% decline threshold for a “technical bear market.” It is estimated that the market capitalization of S&P 500 constituents has evaporated by $5.8 trillion in just four trading days, marking the worst four-day decline since the index was established in the 1950s.
Meanwhile, the U.S. tariff policy has triggered a chain reaction in global capital markets. Bloomberg statistics show that since Trump proposed the so-called “reciprocal tariffs” on April 3, the total market value of global stocks has shrunk by $1 trillion, slightly above half of the EU’s GDP. American tech giants have become the hardest hit, with the combined market value of seven major tech companies, including Apple and Microsoft, evaporating by $1.65 trillion, and Apple, due to its heavy reliance on overseas supply chains, saw its stock price plunge nearly 23% in four days, marking the largest single-week drop since the outbreak of the pandemic in 2020.
Previously, many opinion leaders in the cryptocurrency circle firmly believed that the cryptocurrency asset class would not be affected by traditional tariffs, as their transactions do not require crossing borders and customs. They argued that in the face of a new round of mercantilism and trade barriers globally, the value proposition of cryptocurrencies would be further highlighted. Michael Saylor, founder of Strategy, stated on April 3, “Bitcoin has no tariffs.”
However, the total market value of cryptocurrencies has dropped 35% from its peak in December 2024, from $3.9 trillion to $2.5 trillion. The “Crypto Fear and Greed Index” shows a reading of 17, indicating extreme fear and a pessimistic market sentiment.
Last night, Bitcoin fell below $75,000 again, while BTC’s market share continued to rise, and the altcoin market suffered severely, with Ethereum dropping below $1,400 once more.
In the past 12 hours, the cryptocurrency market saw a total liquidation of $243 million, including $192 million from long positions and $51 million from short positions.
The continuous decline in Bitcoin prices may even force Strategy, which has been buying aggressively, to sell Bitcoin. According to the 8-K form submitted to the SEC by Strategy on April 7, if Bitcoin prices continue to fall, Strategy may be forced to liquidate its Bitcoin holdings to repay debts, breaking Michael Saylor’s promise of “never selling Bitcoin.” Since Trump won the election in November 2024, Strategy has purchased 275,965 Bitcoins (valued at $25.73 billion) at an average price of $93,228, and this portion is currently facing an unrealized loss of $4.6 billion.
Increasing Pessimism: Analysts’ Views on the Current Market
In the past week, several Wall Street banks, including Goldman Sachs and JPMorgan Chase, have warned that if the trade war continues to escalate, the U.S. and even the global economy may fall into recession this year, further diminishing the appeal of financial markets.
However, the White House team is celebrating victory. “We are building a bottom right now, really building a bottom,” Trump’s chief trade advisor Peter Navarro said on Fox News on Monday night. “Next, there will be a reversal, and those companies in the S&P 500 that move production back to the U.S. first will drive the recovery; this will happen soon. Dow 50,000 points, I guarantee it, and there will be no recession.”
Nonetheless, Navarro’s optimistic remarks did not gain support from JPMorgan CEO Jamie Dimon, who warned in his annual letter to shareholders on Monday that Trump’s tariffs would drive up prices, drag down the global economy, and weaken the U.S.’s global position by undermining its ally system. Even some of Trump’s allies, including Elon Musk and Bill Ackman, have recently warned that this tariff policy is fundamentally flawed and a misguided approach.
Crypto analyst Phyrex believes that based on the Federal Reserve’s behavioral logic, unless inflation significantly declines, even “defensive rate cuts” will be difficult to implement swiftly. The real watershed moment may come when the U.S. GDP data is released at the end of April.
From the cryptocurrency market’s perspective, the turnover rate of BTC has decreased today. URPD data indicates that even if the price falls below $77,000, investors in the $93,000-$98,000 range have not reduced their positions, indicating that current selling pressure does not come from high-position holders, and panic selling has not occurred at the top. The on-chain structure remains relatively healthy; as long as subsequent policies are not frequently reversed, BTC and risk markets may still have room for phased repair.
As U.S. Treasury bonds no longer serve as a safe haven, the yield on 10-year Treasury bonds has rebounded to around 4.3%, higher than the end of March level, raising the cost of mortgages and other types of loans. The yield on 30-year U.S. Treasury bonds closed at 4.76%, up nearly half a percentage point from the lowest point on Monday. The yield curve spread between the U.S. two-year and ten-year Treasury bonds has widened to 48 basis points, the steepest level since May 2022.
BitMEX co-founder Arthur Hayes stated, “The Fed has little time left, and the situation is spiraling out of control. Previously, a stock market decline would lead to a drop in U.S. 10-year Treasury yields, which would benefit risk assets. Now, a stock market decline is accompanied by rising U.S. 10-year Treasury yields, which is bad news. The market finally realizes that if dollar export revenues decrease, there will be no buying power for Treasury bonds or stocks; the game is over.”
Pessimistic expectations are strengthening. Trader Eugene stated, “The introduction of global trade tariffs marks a change in the world order not seen in over 50 years. Free trade has always been a key driver of productivity and economic growth, contributing to the largest long-term bull market in history. Shifting from openness to a protectionist stance will have profound effects that will take years to manifest, unless Trump completely abandons his tariff plans. I believe the likelihood of this is very low. This will pose significant long-term resistance to global risk assets.
In terms of cryptocurrencies, the recent structural decline in active developers may be the most concerning issue. In the previous cycle, we could observe developer activity and feel reassured, knowing our industry still benefitted from long-term tailwinds. Fast forward 2-3 years, and we have produced nothing particularly interesting or important, and the future outlook is even worse than it was then.
In the last cycle, we looked forward to the launch of ETFs and a better regulatory environment under supportive government leadership for cryptocurrencies as a light at the end of the tunnel. Now that these have come to pass, they have (once again) failed to meet expectations, and I see no future that can extricate cryptocurrencies from their inherent “Ouroboros” (self-circulating, self-consuming dilemma).
From a macro perspective, the global situation is undergoing a significant transformation not seen in a century. Billionaire hedge fund manager and Bridgewater Associates founder Ray Dalio stated that while the market and economic focus on tariffs is important, we should not overlook deeper global issues. He pointed out that we are in a stage of “classic collapse” of the monetary, political, and geopolitical order, which may happen only once in a lifetime, though it has occurred multiple times in history.
Dalio advised not to be distracted by short-term events like tariffs but to pay attention to the interaction of five major forces (economic, political, geopolitical, natural, and technological). Studying similar historical cycles (such as currency crises) can help predict the future.
“The current changes are part of a historic long cycle; tariffs are merely the surface. The real driving factors are the structural collapse of monetary, political, and geopolitical orders. Understanding the interactions of these forces and learning from historical experiences will better prepare us for the future.”
This article is collaboratively reprinted from: Deep Tide