Forward the Original Title‘Trump Economics #5 | From Tariffs to Crypto Reserves: What Kind of Game Is Trump Playing?’

“Live by the sword, die by the sword”? OKG Research provides an in-depth analysis of the crypto market under Trumponomics.

On the evening of March 3 (Beijing time), U.S. President Donald Trump confirmed the imposition of additional tariffs on Canada and Mexico, with reciprocal tariffs set to take effect on April 2. This decision shattered any last-minute hopes of an agreement with Canada and Mexico that could have averted full-scale tariffs.

Bitcoin, which had barely finished digesting the optimism from the previous day’s “crypto strategic reserve” news, plunged 8% within 48 hours. Meanwhile, U.S. stocks also took a hit, suffering a “blackout” on the first trading day, with the Nasdaq index dropping 2.6%. Since Trump’s return to office just over a month ago, the crypto market has lost 22% of its total market capitalization, while Trump Media and Technology Group (DJT) has fallen by 34.75%. Even Elon Musk, a strong Trump supporter, was not spared—his DOGE team’s “reckless and crude” approach, coupled with his deep involvement in international politics, led to Tesla’s stock price plunging 32.87%.

Trump’s every word and action are keeping the crypto market on edge, embodying the sentiment of “live by the sword, die by the sword.” In 2025, OKG Research has launched the “Trumponomics” special series, where the author will continuously track the impact of the Trump 2.0 administration on the crypto market. In the previous article of this series, “With a new wave of liquidity, can the crypto market seize the opportunity to reach new highs?”, we suggested that the market should focus on real liquidity (with TGA as a short-term indicator) rather than market noise, emphasizing that without genuine liquidity support, an illusion of prosperity built on hype cannot last. Moreover, official U.S. Treasury data confirms that since February 28, TGA accounts have ceased injecting liquidity into the market, after having previously pumped $304.89 billion into it.

As the first major policy move, tariffs are already shaking global risk markets tied to the U.S.. At first glance, this approach may seem destructive, so why has Trump, both in his first and second term, been so fixated on it? This article, the fifth installment in the OKG Research 2025 “Trumponomics” series, takes the trade war as a central theme, analyzing the deeper significance behind Trump’s “tariffs in one hand, crypto in the other” strategy.

Tariffs: A “Bargaining Chip”

Before and after taking office, Trump made numerous verbal commitments, but the first major action he took was imposing tariffs.

On the surface, Trump’s tariff hikes aim to reduce the trade deficit, boost employment, and stimulate the economy. However, both Trump’s first-term trade war and the global trade war triggered by a 1930 tariff act suggest that this is not a “good business deal”. According to the U.S. Congressional Budget Office (CBO), the 2018–2019 trade war resulted in a 0.3% loss in U.S. GDP, amounting to approximately $40 billion. Data from the Peterson Institute for International Economics indicates that steel and aluminum tariffs alone cost the U.S. manufacturing sector around 75,000 jobs in 2018. Moreover, many American companies did not relocate their production back to the U.S., but instead moved operations to low-cost countries like Vietnam and Mexico (Kearney Report). Other presidents’ trade wars have also yielded poor results—after the U.S. enacted the Smoot-Hawley Tariff Act in 1930, global trade volume shrank by about 66%, U.S. exports plummeted by 67%, and farm bankruptcies surged due to price distortions.

Tariffs are merely the starting point—Trump’s administration deliberately creates economic uncertainty to gain leverage in negotiations. The essence of this tariff battle is not just about the movement of goods, but also technology restrictions, capital flows, and currency competition. Modern trade wars go far beyond tariff barriers—they involve deep interventions in the global financial system. From foreign exchange markets to stock markets, from U.S. Treasury yields to risk assets, no sector of the global capital market is spared.

Even Warren Buffett, who rarely speaks out on political matters, has warned that punitive tariffs could trigger inflation and harm consumer interests. Shifts in expectations for the real economy will further complicate the Federal Reserve’s policy dilemmas—how can it control inflation without triggering a severe economic recession? A decline in consumer confidence could drag down economic growth, while inflationary pressures would limit the Fed’s ability to cut interest rates, ultimately tightening liquidity and leaving the Fed in a bind.

For the crypto market, which acts as a sentiment amplifier for global risk assets, its price movements are closely correlated with U.S. tech stocks. Whether it’s Bitcoin mining—with 70% of its hash power driven by Nvidia GPUs—or the fact that crypto-related firms like Coinbase and MicroStrategy are included in the Nasdaq 100 Index, U.S. financial policies and regulations have already deeply shaped the crypto market.

In other words, the crypto market behaves more like a derivative of U.S. financial policies rather than a true hedge against them (see OKG Research’s article “Repositioning the Crypto Market: The Struggles of Transformation Amid Global Liquidity Challenges,” July 2024). Looking ahead, assuming macro expectations remain unchanged, how might the market respond to tariffs? If other countries choose to compromise, the current fluctuations in the crypto market may be temporary, and in the mid-to-long term, it could benefit U.S.-linked risk assets, including U.S. equities. In this scenario, tariffs serve as a bargaining tool to help the U.S. achieve its real objectives at the negotiation table; If other countries retaliate strongly, matching U.S. tariffs with countermeasures, this would negatively impact risk assets, including the crypto market.

Crypto Assets as an Unconventional Countermeasure in Unconventional Times

Neither achieving its stated objectives nor benefiting Trump’s MEGA (Mega Interest Groups) supporters, the disruptive tariff policy and a Trump 2.0 administration that insists on a “hardcore” stance despite a 40% drop in key businesses raise a critical question: how can Trump’s “tariffs in one hand, crypto in the other” strategy make America great again?

Over the past month, the turmoil in U.S. financial markets has been a reflection of the accelerating loss of national confidence. As Paul Krugman, Nobel laureate in economics (2008), recently wrote in his blog: “Since Elon Musk and Donald Trump took power five weeks ago, they have recklessly undermined the U.S. on multiple fronts—including rapidly destroying its influence on the global stage. The U.S. has abruptly redefined itself as a rogue state that does not honor commitments, threatens allies, engages in mafia-style extortion, and interferes in the elections of democratic nations.”

History tells us that when national credit systems begin to collapse, capital does not remain stagnant—it actively seeks alternative channels for circulation.

Looking back at the Japan-U.S. trade tensions of the late 20th century, Japan’s economic rise led to trade imbalances with the U.S., sparking a trade war. The Plaza Accord forced the yen to appreciate sharply, devastating Japan’s export-driven economy and triggering financial turmoil. As Japan’s asset bubble burst and the government imposed stricter financial controls, the market rapidly sought alternative pathways, leading to the emergence of a booming black-market economy—gold smuggling, offshore dollar transactions, and the proliferation of informal foreign exchange markets. According to Nikkei statistics, Japan’s major cities once had as many as 17,000 underground financial hubs. This “shadow financial system” served as a self-organized hedge against the collapse of traditional financial structures. After crippling Japan’s economy, the U.S. later revived Japan through military procurement contracts and currency liberalization, leading to the era when “one Tokyo could buy all of America.” However, subsequent over-aggressive interest rate cuts fueled a massive asset bubble, which eventually collapsed, sending Japan from prosperity to stagnation—an economic saga of rise, exuberance, and ultimate decline.

This historical parallel suggests that whether through “black markets” or financial liberalization, alternative financial structures always emerge during trade wars. Bringing this insight to the present, Trump’s announcement of a national strategic crypto reserve—while appearing as financial innovation—is more likely an unconventional countermeasure for extraordinary times.

There are two key reasons for this:

1. With the credibility of the U.S. dollar deteriorating and the Federal Reserve’s monetary policy hitting its limits, America urgently needs a new bargaining chip to sustain global capital confidence. Crypto assets could serve as this “quasi-financial weapon.” If the U.S. government gains control over strategic-level reserves, it will expand its influence over global capital flows.
2. The de-dollarization trend is becoming evident. If trade wars escalate, nations will inevitably accelerate their allocation of non-dollar assets to hedge against the risks of the U.S. monetary system. Gold prices have been steadily climbing since the start of 2025, a clear sign of this shift. In an era of accelerating de-dollarization, crypto assets—if they can maintain true decentralization rather than fall under the control of a single nation—could gain new geopolitical premiums in global financial competition.

Trump’s 2.0 administration has taken a more explicit stance on America’s dominance in the global economic system. His government aims to dismantle the post-World War II international financial order. Rather than strengthening the traditional dollar-based system, establishing a crypto reserve allows for greater “indirect intervention” in the market. As crypto adoption and technology progress, a new cross-border payment system could emerge, potentially leading to a government-controlled crypto financial network in the future.

In The Biography of Trump, Trump’s German ancestry and his fighter’s mentality are highlighted, portraying him as a leader who values passion over intelligence and talent. For him, the thrill of closing deals quickly and defeating competitors is the ultimate motivation. However, in a trade war, rushing to secure new deals and striving to “defeat the competition” may not necessarily yield the best outcome for his administration.

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