Economic prospects in the US are worsening due to new trade barriers and investor uncertainty, while cryptocurrencies could offer an alternative.
Since mid-March, traditional financial markets in the United States initially stabilized – and were then able to begin a countermovement (upward). However, US President Donald J. Trump promptly reversed this price recovery this week. He announced 25% punitive tariffs on all cars not produced in the US. These tariffs also include car parts, although there are (temporary) exceptions (for Canada and Mexico).
In addition, the incumbent US President plans to announce further tariffs on April 2nd. These include so-called reciprocal tariffs (on almost everything and everyone), and also other specific tariffs, for example, on medical devices. According to the media, investors are shocked by this and are selling their assets en masse, which – if true – would be surprising. After all, this is exactly what he promised during his election campaign.
And if there’s one thing Trump, unlike German politicians, can’t be accused of, it’s breaking campaign promises. I know some are now suggesting that he also promised to end the war in Ukraine within 24 hours. But this isn’t entirely in his hands, and at least there are discussions about it now. But I don’t want to get too political here, especially since I don’t like Trump’s tariff policy either!
The reason for the price losses is different!
According to the media, investors have so far thought that Trump is using the tariffs – as he did during his first term – more as a means of political pressure. But in the end, things won’t be that bad. If that were the case, it was obviously a miscalculation that had to be corrected. In that respect, the recent price losses could certainly be explained by this. But there is another important reason that seems more plausible in my opinion.
This reason is definitely related to Trump. His policies have recently caused massive uncertainty for both many consumers and companies in the US. And, of course, investors as well. This is reflected in lower consumption, significantly worsened inflation expectations among consumers, and significantly lower investment by companies. Insecure investors are also fearful and therefore tend to rely on “safe havens” such as gold.
But if the “mother of all cryptocurrencies,” Bitcoin (BTC), is supposed to be digital gold, it too would have to rise. However, it hasn’t done that recently. However, it did surge immediately after Donald Trump‘s election as US president, so perhaps that price rally is already behind it. Nevertheless, there’s currently more to be said for Bitcoin than against it. And by that, I certainly don’t mean just the planned US Bitcoin or crypto reserve!
But let’s get back to the reason for the current price losses. As we know, the US economy depends on consumption for about two-thirds of its output. However, US consumers are uncertain and are holding back. Companies are also holding back on their investments. Therefore, we are heading for a comparatively weak economic year in 2025. Under Biden, economic growth recently reached just under 3%. This year, it would be good if there were at least a one in front of the decimal point.
Trump has a large part in this, but…
That the US economy will grow comparatively weakly in 2025; yes, Trump undoubtedly has a large part in this. But even though he is often portrayed that way in the German media, he is not the devil himself – and not responsible for all the suffering in this world. Thus, his administration had no choice but to implement austerity measures, some of them draconian. His Treasury Secretary, Scott Bessent, called this a “detox of the US economy.”
Biden achieved the comparatively high economic growth primarily by pumping massive amounts of money into the economy, keyword (among others): the Inflation Reduction Act. In the long run, however, this would not have worked. The higher a country’s debt already is, the less effective new debt is in stimulating the economy. And Americans have already accumulated more than 35 trillion (= 35,000 billion!) US dollars in debt.
If the Trump administration had maintained Biden’s course, we would likely soon be heading for a US sovereign debt crisis. Such a crisis would likely represent Armageddon for the economy and the financial markets. However, it would likely represent the best of all possible worlds for Bitcoin, which was created during the “financial crisis.” However, one must also ask what good supposedly high Bitcoin prices (in US dollars) are when the US dollar is no longer worth much.
What will happen next?
I hope you already understood what I was getting at. The US government was virtually forced to take measures that will burden the economy in the short term. Therefore, growth this year will be rather sluggish. The ill-advised tariff policy is anything but helpful. This is adding fuel to an already blazing fire. It would be better to keep this fire under control. Whether Trump can and will actually back down on tariffs remains to be seen.
In any case, investors are currently playing a stagflation scenario, meaning not only a significantly slowing economy, but even a recession. This, however, is accompanied by rising inflation. While the US economy is likely to slow significantly, I don’t see a recession yet. Inflation is similar. It may not fall as rapidly to the Federal Reserve’s official target, but it will fall as the economy cools. Even if there may be short-term upward outliers.
This gives the Federal Reserve the opportunity to cut interest rates further and more significantly/quickly. Apart from that, if the Federal Reserve has to choose between the labor market/economy and inflation, it will, as always, choose the economy. Therefore, the “inflation problem” will, if in doubt, be put on the back burner. These aren’t such a bad prospect for real assets like stocks and cryptocurrencies. But the pain will only get a little worse before it gets better!
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