Many have speculated that bitcoin might benefit from a global trade war. And why shouldn’t it? It’s global and free from state influence. But how is bitcoin actually holding up, and is there a single catalyst that could truly establish bitcoin's role as a safe haven currency?
The global trade war
U.S. President Donald Trump’s trade war with China has reached worrying proportions, and neither country appears to be willing to back down. As the tit-for-tat tariff bonanza continues to escalate, nearly every industry is being thrown under the bus. And China isn’t the only country being targeted. Even U.S. allies are feeling the heat.
The trade war began as a result of Trump’s belief that the U.S. is being taken advantage of in global trade. During his campaign, he promised to ‘level the playing field,’ as a part of his ‘make America great again’ strategy.
The first jab in the trade war hit the renewable energy industry hard, with the U.S. imposing tariffs on Chinese solar cell imports, citing concerns of Chinese dominance in the global supply chain. But what really sent the trade war into high gear was the next round of tariffs, targeting steel and aluminum imports from countries across the globe.
The industrial metals tariffs brought the whole world into the mix. With China only accounting for 2.9 percent of steel exports to the U.S., the countries hit hardest by the move were actually American allies, with Canada taking the brunt of the impact.
In response to the steel and aluminum tariffs, China unveiled its own $3 billion retaliation, targeting fresh fruits, wine, nuts, modified ethanol and more. And though China offered to cut the trade deficit by $50 billion, discussions between the two parties broke down in early April.
The two countries continued to go back and forth for the next couple of months, taking a turn for the worst in June, with Trump announcing another potential round of tariffs on $200 billion in Chinese products, and another $200 billion if China retaliates.
Chinese President Xi Jinping responded, stating that ‘China will strike back if hit.’
How much will the trade war cost the global economy?
Though it is difficult to estimate the true impact of the trade war across the world, some analysts are suggesting figures in the trillions of dollars.
One JPMorgan analyst, John Normand, the bank's head of cross-asset fundamental strategy, suggests that further escalation of the trade war tit-for-tat could reduce global GDP growth by a full 1.4 percent over the next two years.
Normand’s colleague, Marko Kolanovic, JPMorgan’s head of quantitative strategy, estimated in June that the trade war had already wiped out over $1 trillion in market capitalization from American companies.
The global economic threat is very real, and amplified by a strong U.S. dollar sparked by the Fed’s moves during the same period of time.
The world’s major currencies are taking a beating, and even go-to safe haven assets like gold and silver are struggling to keep up with the soaring USD.
Like gold and other safe haven assets, bitcoin has not really seen a significant breakout that can be tied to the escalating trade war, but other factors may be paving the way for such a rally.
Though not as extreme as in Venezuela, Argentina or Iran, which have seen increased bitcoin usage as their currencies fell, the devaluation of the Chinese yuan has the potential to spark a similar boost.
In the past few months, the USD has rallied against the Chinese yuan as tariffs have begun trickling in,
And while the yuan hasn’t quite walked off the cliff just yet, bitcoin offers Chinese citizens a loophole to escape laws meant to prevent capital flight, If things do begin to head south, really south, Chinese citizens could begin looking for solutions, with safe haven assets, new or old, standing to benefit in the process.
Another factor that could lead to greater adoption of bitcoin as trade wars escalate is the growing fear that the dollar may be overvalued.
With the trade war continuing to weigh on the rest of the world’s currencies, the IMF is suggesting that the dollar may be approaching a breakdown, which could wreak havoc across the global economy. Currently, due to its high usage and strength, the dollar is considered by many as a leading safe haven currency. But if it began to lose ground, confidence could begin to wane.
The Fed are doing their best to prevent this, which may explain both gold's and bitcoin’s current struggle, but the Fed can’t manipulate the dollar forever without expecting some negative repercussions.
Though no one is expecting the dollar or the yuan to go the way of the bolivar, bitcoin still offers a promising hedge against inflation and devaluation over time.
As the trade war continues to play out, bitcoin may have a chance to prove its worth, both as a currency and a store of value.
Image from Pexels.
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Texan living in Mexico, new tech enthusiast, decentralization fan, cryptocurrency enthusiast, geopolitical junkie, digi-explorer, and music lover. I believe that we are on the cusp of a new frontier in how we will view the government, money and energy. Let’s be a part of it, together.