Donald Trump has long promised to raise prices if they are re -elected, in particular American neighbors and economic competitors such as China, Mexico and Canada. On January 31, the White House confirmed its intention to impose 25% of prices in Mexico and Canada (before temporarily suspending its decision) and 10% in China.
Although Trump calls for “the most beautiful word in the dictionary (English)” prices, what do they really mean?
What are the prices?
Basically, prices are taxes on imports imposed by governments to protect national industries or generate income. However, they are also a powerful economic tool, often used to control trade, influence markets and even economic battles.
Although prices aim to protect national companies by making imported goods more expensive, they can also increase local prices, contributing to inflation. Whether it is the American-Chinese trade war, the EU carbon border border tax or the broader impact of protectionist policies, prices remain one of the most debated tools in economic policy.
To better understand how prices have an impact on world trade and daily life, we turned to James Butterfill, Coinshares research chief.
Coinshares: What are the main commercial wars that have occurred in the past and what type of impact has it had?
James Butterfill: There were many, but some of the greatest commercial wars occurred at the turn of the 20th century:
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The Dingley Tariff Act (1897): increased import duties to 52%, increasing American industry but harming consumers through higher prices and damaging trade relations.
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The Payne-Aldrich Tariff Act (1909): intended to reduce prices, but maintained them high, deepening the divisions of the Republican Party.
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The Fordney-McCumber Act (1922): imposed record prices (more than 40% in some cases), resulting in economic reprisals from other countries.
Trade prices have generally been damaging to global growth. Even in the 1980s, American-Japanese trade tensions on car exports contributed to the Japanese asset bubble, which has finally collapsed, causing decades of economic stagnation.
Whenever tariff wars are threatened, they tend to harm economic growth worldwide.
What would be the impact of American prices to increase?
Take Donald Trump to the word and assume that he follows his promises concerning prices, immigration policies and tax reductions. In this case, inflation could accelerate quickly. However, the problem is that it would be bad inflation. For example, the cost of buying a German car in the United States would increase considerably, which encourages consumers to precipitate their purchases before prices take effect. This increase in spending could temporarily stimulate retail sales, creating a false feeling of economic force in the United States
We have already seen the first signs of this in the December inflation data. But this type of inflation is an unproductive force in the economy. Good inflation occurs when an economy is booming – when the price increase is driven by an increasing demand for goods and services. On the other hand, what we see here is inflation focused on the increase in wages due to the shortage of labor (because immigration restrictions limit the supply of cheap workers) and higher imports of import tax. This type of inflation is ineffective and generally harmful to economic growth.
What impact can have rates on crypto?
Cryptocurrencies have become a significant part of the world economy, with more than 580 million users worldwide in January 2024 (according to crypto.com). Since Bitcoin is classified as a product in many countries, including the United States, it is worth examining how new American prices could affect Bitcoin and the wider market of cryptography.
Again, we asked James Butterfill’s information.
How would the impact of the world prices also affect Bitcoin?
James Butterfill: In the short term, the prices would be negative for Bitcoin. Unlike gold, Bitcoin has a growth component, which means that it reacts to economic trends and liquidity cycles.
Initially, prices could:
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Slow economic growth, reducing demand for risk assets such as Bitcoin.
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Increase inflation, which could cause speculation on higher interest rates.
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Causes the temporarily drop in bitcoin, as it is often correlated with actions.
However, the long -term image is different. At one point, the market will realize that the United States cannot continue to increase interest rates while the economy is weakening (stagflation). When this happens, Bitcoin will probably rebound, while actions continue to fight.
Currently, the correlation of Bitcoin with the Nasdaq is around 40%, well below its peak of 72%. But as we saw in March 2023, during the banking crisis, Bitcoin can be decoupled and act as a refuge: it is the paradox of bitcoin, it can be a volatile asset and a safehaven
In this particular context, should we consider Bitcoin as a different asset from that of the rest of the digital tokens?
JbYes. Altcoins are much more focused on growth and closely linked to the technological industry.
For example:
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Ethereum and Nasdaq have a higher correlation than Bitcoin and Nasdaq.
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Ethereum and other altcoins behave fundamentally more as technological actions, while Bitcoin is increasingly considered to be digital gold.
This divergence is likely to continue, Bitcoin behaving more like coverage against economic uncertainty and the remaining altcoins linked to the technological sector.
Some avenues to think
Prices shape savings, dictate commercial alliances and can trigger trade wars, with training effects on global markets, supply chains and consumer spending.
In the short term, higher American rates could mean:
In the long term, the role of Bitcoin as a cover could be strengthened, especially if pricing policies lead to economic instability.
One thing is certain: American political decisions will continue to influence the global markets and many probably the future of Bitcoin.
