Chain Reactions Triggered by Tariff Policies: Macroeconomics, Dollar Liquidity, and Crypto Market Outlook

Trump's sudden tariff policy has triggered a震荡 in the global financial market. This decision not only affects the trade structure but may also reshape the international capital flow pattern and the supply-demand relationship in the U.S. Treasury market. Let's analyze in depth the potential chain reactions brought about by this policy and its possible impact on the crypto market.

Macroeconomic Impact

Trade Structure Changes

The high tariff policy aims to reduce the trade deficit and encourage domestic production. However, this approach may lead to unintended consequences:

• Rising import costs may increase inflationary pressures
• The imposition of retaliatory tariffs by other countries may weaken U.S. exports.
• Trade imbalances may temporarily ease, but the growing pains of supply chain restructuring and rising prices are hard to avoid.

International capital flow is hindered.

A decrease in U.S. imports means a reduction in the flow of dollars overseas, which could trigger a "dollar shortage" globally:

• The dollar reserves of overseas trade partners have decreased.
• Emerging markets may face liquidity tightening.
• Capital may flow back to the U.S. or into safe-haven assets, impacting the prices of overseas assets and exchange rate stability.

Imbalance of supply and demand in the US Treasury market

For a long time, the huge trade deficit in the United States has led to a large amount of dollars being held overseas, which are often returned to the U.S. by purchasing U.S. Treasury bonds. Tariff policies may disrupt this cycle:

• The ability of foreign investors to purchase U.S. Treasury bonds may decline.
• The U.S. fiscal deficit remains high, with a continuous increase in government debt supply.
• Weakening external demand may lead to an increase in US Treasury yields and higher financing costs.
• The U.S. Treasury market may face risks of insufficient liquidity.

Dollar Liquidity Crisis and Federal Reserve Response

Formation of Dollar Shortage

The cooling of trade has led to tighter supply of overseas dollars, which may trigger a dollar liquidity crisis. Foreign investors lack dollars to purchase U.S. Treasury bonds, and the domestic financial system in the U.S. may need to fill this gap.

Possible measures the Federal Reserve may take

To address potential liquidity crises, the Federal Reserve may have to restart quantitative easing policies:

• Expand the balance sheet
• Lowering interest rates
• Use the banking system to jointly purchase government bonds

policy dilemma

The Federal Reserve faces the dilemma of stabilizing the bond market and controlling inflation:

• Timely injection of US dollar Liquidity can stabilize government bond interest rates and alleviate the risk of market failure.
• Large-scale monetary easing may breed inflation and weaken the purchasing power of the dollar.

Currently, ensuring the stability of the government bond market seems to be an urgent task. "Printing money to buy bonds" may become a politically inevitable choice. This means that the global dollar liquidity environment may shift from tightening back to easing.

The Impact of Bitcoin and Crypto Assets

Inflation hedge demand rising

The signal of the Federal Reserve restarting the printing press could be good news for Bitcoin and other crypto assets:

• When the dollar is flooding and expectations of credit currency depreciation are rising, capital may seek reservoirs that resist inflation.
• The appeal of Bitcoin as "digital gold" may strengthen.
• The allure of Bitcoin with limited supply has greatly increased in this macro context.

"digital gold" narrative reinforcement

If the Federal Reserve's monetary easing leads to a lack of trust in the fiat currency system, the public may be more inclined to view Bitcoin as a store of value that resists inflation and policy risks. Each instance of money printing and policy missteps may further validate the value of holding Bitcoin as an alternative asset insurance.

Potential Impact on the DeFi and Stablecoin Market

changes in stablecoin demand

The significant fluctuations of the US dollar may affect the demand for dollar stablecoins such as USDT and USDC:

• When the dollar is in short supply, the offshore market may use stablecoins to "curve save the country".
• The Federal Reserve's easing may drive large-scale issuance of stablecoins to meet trading and hedging demands.
• Investors in emerging markets and highly regulated areas may rely more on stablecoins as an alternative to the US dollar.

DeFi yield curve changes

The tightening or loosening of US dollar liquidity may be transmitted to the DeFi lending market through interest rates:

• During the dollar shortage period, on-chain dollar lending rates may rise.
• When the Federal Reserve loosens monetary policy leading to a decline in traditional interest rates, the interest rates of stablecoins in DeFi may be relatively more attractive.
• The DeFi yield curve may experience fluctuations of "down first and then up": initially flattening due to ample liquidity, and then steepening under inflationary pressure.

Overall, Trump's tariff policy may trigger a series of macroeconomic chain reactions, profoundly affecting all aspects of the crypto market. From macroeconomics to dollar liquidity, to Bitcoin trends and the DeFi ecosystem, we may be witnessing the unfolding of a butterfly effect. For crypto investors, this macro storm brings both risks and opportunities.