5 months ago
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“Live by the Sword, Die by the Sword”?
Hedy Bi, OKG Research
U.S. President Donald Trump confirmed the imposition of tariffs on Canada and Mexico yesterday, set to take effect on April 2. Hopes of a last-minute deal to avoid sweeping tariffs were dashed, sending shockwaves across global markets.
Bitcoin, which had barely had time to digest the previous day’s “crypto strategic reserve” optimism, tumbled 8% within 48 hours. U.S. stocks also felt the impact, with the Nasdaq dropping 2.6%. In just over a month since Trump’s return to office, the crypto market has shed 22% of its total market capitalization, while Trump Media & Technology Group (DJT) has plunged 34.75%. Even Elon Musk, a staunch Trump supporter, was not spared. Tesla’s stock fell 32.87%, weighed down by the company’s controversial Dogecoin-related moves and Musk’s increasing involvement in global political affairs.
Trump’s every word and action are sending tremors through the crypto market, reinforcing the notion that its fortunes are closely tied to his policies — for better or worse. In 2025, OKG Research is launching a special series, Trumpnomics, to track the impact of Trump 2.0 on the crypto market. In our previous article, A New Round of Liquidity Approaches: Can the Crypto Market Leverage It to Break New Highs?, we argued that market participants should focus on real liquidity (such as Treasury General Account movements) rather than media noise. We highlighted that without genuine liquidity support, market euphoria fueled by mere rhetoric is unlikely to be sustainable. Notably, according to official U.S. Treasury data, the TGA ceased injecting liquidity into markets on February 28 after having pumped in a total of $304.89 billion.
Now, with tariffs emerging as the first major policy lever, global risk markets — especially those with strong U.S. exposure — are feeling the heat. But why does Trump continue to rely on trade wars, despite their disruptive effects? This article, the fifth in OKG Research’s Trumpnomics series, examines the deeper logic behind Trump’s “tariffs in one hand, crypto in the other” approach.
Trump made plenty of promises both before and after taking office, but his first major action was imposing tariffs.
Superficially, his tariff hikes aim to reduce trade deficits, boost employment, and strengthen the economy. However, past experience — whether from Trump’s first term or the 1930s global trade war triggered by the Smoot-Hawley Tariff Act — suggests that tariffs are rarely a profitable venture. The U.S. Congressional Budget Office (CBO) estimated that Trump’s 2018–2019 trade war shaved 0.3% off U.S. GDP, amounting to a $40 billion loss. The Peterson Institute for International Economics found that Trump’s steel and aluminum tariffs alone resulted in the loss of approximately 75,000 U.S. manufacturing jobs. Rather than bringing production back to the U.S., many firms simply relocated to low-cost countries like Vietnam and Mexico (Kearney). Historically, tariff wars have had severe consequences: after the U.S. passed the Smoot-Hawley Tariff Act in 1930, global trade shrank by 66%, U.S. exports plummeted by 67%, and price distortions led to widespread farm bankruptcies.
Tariffs, however, are merely the opening move. Trump’s administration is leveraging economic uncertainty as a negotiation tool. The heart of this trade war is not just about goods, but also about technology restrictions, capital flows, and currency competition. Trade disputes have evolved beyond tariff barriers into deeper interventions in the global financial system — spanning forex markets, stock valuations, bond yields, and risk assets.
Even Warren Buffett has broken his usual silence, warning that punitive tariffs could stoke inflation and hurt consumers. A shift in economic expectations could, in turn, complicate the Federal Reserve’s already precarious balancing act: how to control inflation without triggering a severe recession. Consumer confidence shocks may dampen growth, while inflationary pressures could constrain the Fed’s ability to cut interest rates, tightening liquidity further and leaving policymakers trapped.
For the crypto market, a sector that amplifies global risk sentiment, the impact of these policies is substantial. Bitcoin mining, for example, remains heavily reliant on Nvidia-powered GPUs, and crypto-related firms such as Coinbase and MicroStrategy are part of the Nasdaq 100 index. U.S. financial policies and regulatory decisions have long shaped the crypto landscape.
In other words, crypto behaves more like a derivative of U.S. financial policy than an independent hedge. As discussed in OKG Research’s Crypto Market Repositioning: The Growing Pains of Global Liquidity Constraints (July 2024), if macro conditions remain unchanged, the market response to tariffs will depend on the reaction of other nations. If countries choose to compromise, current crypto volatility may prove short-lived, and in the long run, U.S.-linked risk assets — including crypto — could benefit. However, if nations retaliate with their own tariffs, escalating the trade war, risk assets could face sustained downward pressure.
With tariffs proving economically destructive and failing to deliver meaningful gains for Trump’s key support base — the “MEGA” (Mega Interest Groups) — how does Trump’s second administration hope to leverage both tariffs and crypto to “make America great again”?
Over the past month, U.S. financial market turmoil has mirrored a broader erosion of confidence in the American system. As Nobel laureate Paul Krugman recently noted in his blog, Elon Musk and Donald Trump, in the five weeks since taking power, have recklessly undermined U.S. influence on multiple fronts — breaking promises, threatening allies, engaging in mafia-style coercion, and interfering in democratic elections.
History suggests that when national creditworthiness deteriorates, capital does not remain idle — it finds alternative channels.
Consider the case of Japan. In the 1980s, rising U.S.-Japan trade imbalances led to mounting tensions. The U.S., seeking to correct these imbalances, forced Japan to sign the Plaza Accord, which resulted in a sharp yen appreciation. This crushed Japan’s export-driven economy, triggering financial instability. As the Japanese government tightened regulations, markets sought alternative liquidity pathways, fueling a surge in black-market finance — including gold smuggling, offshore dollar trading, and informal forex markets. At its peak, Japan had over 17,000 underground financial hubs (Nikkei). These unofficial financial systems emerged as natural hedges against the collapse of traditional structures. After crippling Japan’s economic rise, the U.S. later used military procurement orders and monetary liberalization to reintegrate Japan into the global system — leading to a temporary boom before the eventual collapse of Japan’s asset bubble.
This historical precedent underscores the key role of parallel financial systems in trade wars. Today, Trump’s proposal to establish a crypto strategic reserve may appear as financial innovation, but it is likely an unconventional tool for extraordinary times.
There are two core reasons for this:
- With the dollar’s credibility under pressure and the Fed’s policy toolkit exhausted, the U.S. urgently needs new instruments to sustain global capital confidence. Crypto could serve as a “quasi-financial weapon” — a strategic reserve asset that enhances government control over capital flows while appearing independent from direct intervention.
- De-dollarization trends are gaining momentum. As trade conflicts escalate, countries will inevitably accelerate diversification away from dollar-denominated assets. The steady rise in gold prices since early 2025 is a testament to this shift. In a world increasingly skeptical of the dollar, a truly decentralized crypto ecosystem — if not controlled by any single nation — could command significant geopolitical value.
Trump 2.0 takes a more assertive stance on U.S. dominance in the global economic order, as his administration seeks to dismantle the post-World War II international political and financial system. Rather than strengthening the dollar’s credit system directly, building crypto asset reserves could provide the government with alternative, less overt means of market intervention. As crypto assets and related technologies gain traction, they could pave the way for a new cross-border payment system — and, in time, a state-backed crypto financial network.
Trump’s biography traces his family origins to Germany and describes him as a “fighter” who values passion over intelligence or talent. For him, the thrill of closing deals at breakneck speed and defeating rivals is the ultimate motivator. Yet, in the context of trade wars, the rush to renegotiate agreements and outmaneuver competitors may not necessarily lead to the most favorable outcome for his administration.
Introduction to Trumponomics:
At OKG Research, we recognize the growing significance of Donald Trump’s economic policies in 2025, particularly their impact on the crypto market. In this Trumpomics series, we examine how Trump’s second term — through tax reform, regulation, and trade policies — will shape Bitcoin and other crypto assets. As institutional adoption and regulatory frameworks evolve, Trump’s economic agenda will be a key driver for the future of cryptocurrencies. Through this series, OKG Research provides crucial insights into how these factors will influence market trends and investment strategies in the new economic era.
Other articles in the series include:
- Trumponomics #1:
Trump Returns: Bitcoin, Oil, and Gold in the New Economic Era
Exploring Bitcoin’s impact on the international financial landscape. - Trumponomics #2:
Trump Is Back: Stablecoins vs. Bitcoin — Who Can Solve the U.S. Debt Crisis?
Examining how blockchain and crypto tools could address the challenges of a $36 trillion U.S. debt market while strengthening the dollar’s dominance. - Trumponomics #3:
Trump Takes Office, but Strategy Stops Buying Bitcoin?
Analysing the challenges faced by MicroStrategy (formerly MicroStrategy Inc.) under the new policies during Trump’s presidency, and analyzes the impact of Bitcoin strategy on the industry. - Trumponomics #4:
A New Round of Liquidity Approaches: Can the Crypto Market Leverage It to Break New Highs?
Decoding TGA: Not QE, But QE-Like — How it impacts the crypto market
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