What are Tariffs?

Tariffs are specific taxes imposed by sovereign nations on goods that cross international borders. Their essence lies in regulating international trade flows through price mechanisms, protecting domestic industries from foreign competition, and serving as leverage in international trade negotiations.

As a core tool of non-tariff barriers, modern tariffs have evolved beyond mere fiscal revenue generation to become strategic instruments for countries to implement industrial protection, adjust trade balances, and engage in international negotiations. According to the World Trade Organization (WTO), the global average applied tariff rate was approximately 5.7% in 2022, but the actual rates for strategic goods can exceed 30%. While tariffs are typically aimed at protecting domestic industries, they often have broader implications for the entire economy.

Difference Between Tariffs and Taxes

The fundamental difference between tariffs and taxes lies in their dimensions of impact and policy objectives. Ordinary taxes (such as value-added tax and income tax) are domestic economic adjustment tools with universal applicability, primarily used for public finance. In contrast, tariffs have a clear international trade orientation, with their subjects strictly limited to cross-border goods, and can implement differential rates based on trading partner countries.

In terms of impact scope, tax adjustments mainly affect domestic economic circulation, while tariffs directly influence the balance of international payments. For example, the European Union’s Carbon Border Adjustment Mechanism (CBAM) in 2023 regulates the carbon emission intensity of imported goods and is a strategic measure to reshape global supply chain competition rules. This dual nature of policy tools often makes tariffs a “thermometer” of international economic negotiations—cases involving tariff adjustments in global trade disputes increased by 42% in 2022.

Overview of Trump’s Tariff Policies

The tariff policies of the Trump administration (2017-2021) marked the beginning of a new paradigm of modern trade protectionism. The core logic was to reshape global trade rules through “maximum pressure.” The most representative measures included:

1. Section 301 Tariffs: Starting in 2018, tariffs of 7.5-25% were imposed on $370 billion worth of Chinese goods, affecting strategic industries such as electronics and machinery.
2. Section 232 Tariffs on Steel and Aluminum: Tariffs of 25% on steel and 10% on aluminum were imposed on traditional allies like the EU and Canada.
3. Retaliatory Tariffs on Digital Services: In 2020, tariffs of 25% were imposed on $1.3 billion worth of French goods.

The implementation of these policies triggered a chain reaction. According to the Peterson Institute for International Economics, U.S. companies bore over 90% of the tariff costs, leading to a drop in the manufacturing purchasing managers’ index (PMI) to 47.8 in 2019, indicating contraction. More profoundly, the “America First” strategy undermined the multilateral trading system, prompting countries to accelerate the establishment of regional trade agreements, such as the early implementation of RCEP.

In his 2024 campaign platform, Trump proposed even more aggressive tariff measures: a comprehensive 60% tariff on Chinese goods and a uniform 10% base tariff on all global imports. Such policy expectations have already triggered panic in financial markets—on the day he announced the reinstatement of steel and aluminum tariffs in February 2024, Bitcoin’s daily volatility reached 15%, the highest since 2023.

Impact of Tariff Policies on Global Markets and Economies

Impact on Traditional Finance

The impact of tariffs is transmitted to traditional financial markets through three channels:

1. Corporate Profit Channel: U.S. publicly traded companies affected by tariffs in 2018 saw an average net profit margin decline of 1.8 percentage points.
2. Inflation Expectations Channel: Tariffs on Chinese goods raised the core PCE price index by an average of 0.3 percentage points annually.
3. Monetary Feedback Channel: The inflationary pressures triggered by tariffs forced the Federal Reserve to raise interest rates more than expected in 2022.

A typical case shows that during the mutual tariff imposition between the U.S. and China in 2019, U.S. agricultural exports fell by 23%, directly causing the volatility of soybean futures prices on the Chicago Board of Trade (CBOT) to rise to 35%. The more profound impact is reflected in supply chain restructuring; for instance, Apple shifted 18% of its iPhone production capacity to India in 2023, increasing the weight of technology manufacturing stocks in the Mumbai Sensex index to 12%.

Impact on Cryptocurrency

Short-term Shock

When tariff policies trigger escalated trade tensions, investors often sell high-risk assets due to concerns about economic prospects, with cryptocurrencies being the first to suffer. Recently, after Trump announced tariffs on Mexico and Canada in February 2025, Bitcoin plummeted 8% within 24 hours, and Ethereum dropped over 10%, resulting in over $900 million in liquidations and 310,000 investors being forced to close their positions. This “stress response” is reminiscent of the 2018 U.S.-China trade war, during which Bitcoin fell by 30% in a month, but prices rebounded quickly once panic subsided.

Safe-Haven Demand

Despite the severe short-term sell-off, the volatility in traditional financial markets caused by tariffs (such as stock market declines and currency fluctuations) may indirectly drive funds into cryptocurrencies, as investors may view them as a hedge. For instance, when Trump imposed tariffs on European steel and aluminum in 2020, the correlation between Bitcoin and gold prices rose from 0.2 to 0.6, indicating that its “digital gold” attribute was recognized by the market.

Long-term Game

In the long run, tariffs that raise the prices of imported goods may accelerate concerns about fiat currency depreciation. For example, after the U.S. imposed a 25% tariff on Chinese electronics, the production costs for related companies increased by 12%, and during the same period, the number of addresses holding over 100 Bitcoins grew by 18%, indicating a clear trend of institutional allocation. Tesla also disclosed in its 2025 financial report that it converted 5% of its cash reserves into Bitcoin to hedge against rising raw material costs.

Additionally, cross-border payments will also be indirectly affected by cryptocurrencies. When traditional trade is obstructed, cryptocurrencies become a new channel for cross-border settlements. In 2023, after Russia faced retaliatory tariffs from the EU, the share of USDT in Russian foreign trade settlements surged from 7% to 23%, with Tether Treasury transferring $4.7 billion in USDT to Moscow exchange addresses, and on-chain transaction fees peaking at 2,100 ETH.

Conclusion

As a tool for restructuring the international economic order, tariff policies have impacts that extend beyond the realm of physical trade, deeply penetrating the digital asset space. Historical data indicates that the cryptocurrency market responds to tariff shocks in a three-stage pattern: “short-term panic - mid-term adaptation - long-term benefit.”

For market participants, it is essential to monitor the inflation, exchange rate fluctuations, and regulatory changes triggered by tariffs, and to adopt diversified strategies to balance risks. In the future, if the traditional financial system falls into a prolonged recession due to tariffs, cryptocurrencies may become an important option for global capital allocation.