As things stand now, 15% tariffs are expected to go into effect on $160 billion of imported Chinese goods on December 15. The stock market plunged on December 3 on news that a trade deal was unlikely to happen, but on December 4 the stock market rallied on news that a trade deal might happen. Indeed, this back and forth in the stock market has been happening for months, with each story or Trump Tweet about whether a trade deal is coming or not causing significant market movements. This article will discuss how the crypto market will react if there is no trade deal before tariffs go into effect on December 15, and what would happen if a trade deal is reached before December 15.
Already the United States has put tariffs on hundreds of billions of dollars of imported Chinese goods, and this round of tariffs will make it so all imported Chinese goods are heavily tariffed. Likewise, China has responded by putting tariffs on over 150 billion dollars of goods imported into China from the United States.
These tariffs are actually paid by individuals and businesses in the United States who import Chinese goods, and the general point of these tariffs, aside from making money for the government, is to make Chinese products more expensive so that individuals and companies choose to buy domestically produced products instead.
This theory is true, but it has serious repercussions for the economy. Numerous United States businesses depended on importing cheap Chinese goods in order to be competitive when selling their products since domestically produced goods are often too expensive to sell retail. The tariffs effectively eat away at the profit margins of the American companies who depend on importing Chinese goods, damaging the economy.
Further, the tariffs are hindering the ability of Chinese manufacturers to make money, since the tariffs are at least partially cutting off demand from United States consumers, and manufacturers have to lower the prices to stay competitive. Therefore, manufacturers are making less money and producing fewer goods. The same could be said for American manufacturers since all goods that China imports from the United States are tariffed as well.
Finally, tariffs cause prices of goods to rise at American retail and e-commerce stores, decreasing consumer spending.
Ultimately, it is clear how such widespread tariffs between the United States and China can damage not only individuals and businesses, but also eat away at the global economy, causing manufacturing to slow down, transport to decrease, and hinder consumer buying. A previous CryptoIQ article deep dives the facts which show that the economy is weakening, including the retail apocalypse. The trade war and its associated tariffs are at least partially causing the economic slowdown.
So What Will Happen To The Markets On December 15?
The stock market has made it clear that it is ready to rally if a trade deal is reached, even though a trade deal has been mostly priced in and stocks are near all-time highs.
That being said, a trade deal remains highly uncertain at this time. President Trump and various government officials have been consistently tweeting that a trade deal is coming, which causes a stock market rally every time, but there is no evidence a trade deal is coming.
Quite the contrary, the Chinese government has been angered and has vowed to retaliate the United States Congress passing bills in support of the Hong Kong protests and calling for increased human rights in Xinjiang, a region where China has been battling anti-government terrorists.
Essentially, the United States Congress has been publicly commenting on internal issues in China on a regular basis, and this is harming the prospects for a trade deal. Indeed, the entire trade war started due to the government meddling with China in the first place, and it still does not make total sense as to why the United States would act to hinder free market trade between China and the United States.
In any case, there are plenty of reasons why a trade deal would not happen before tariffs go into effect on December 15. If this happens it would likely cause a stock crash, especially since the stock market has already priced in a trade deal.
As for the crypto market, if the tariffs go into effect on December 15 as scheduled, crypto has a chance at rallying. Investors across global markets will be going into ‘risk off’ mode, meaning they unload stocks and move into safer assets like bonds and gold. If a fraction of investors choose to sell stocks and then invest in crypto, a crypto market rally would happen, attracting even more investors.
However, there is one scenario where the trade deal does not happen by December 15 and stocks do not fall much. The Federal Reserve could jump in and print hundreds of billions of dollars to prop up the market, such as when they injected $280 billion into the market in recent months to solve a liquidity crisis. This was deep dived in a recent CryptoIQ article.
It seems that the trade deal uncertainty may already be having an impact on the crypto market, although this cannot be known for sure since there are numerous factors that determine the price of Bitcoin (BTC).
Bitcoin (BTC) has generally been heading downwards since hitting the 2019 high of $13,800 in June and went as low as $6,500 in late November. It seems Bitcoin (BTC) found solid support at $6,500, and Bitcoin (BTC) has managed to rise to $7,500, simultaneous with trade war jitters on the stock market.
If the trade deal does happen stocks may have a solid rally for a day or up to a week, but a trade deal is mostly priced in already. Therefore, the crypto market may see some downward movement if the trade deal happens before December 15, but probably nothing too severe, since the market environment would be the same as it has been for months already, with stocks hitting all-time highs and crypto weakening.
Thus, it will be important to follow trade war developments as the December 15 tariff deadline approaches, since whether the trade deal happens or not there will be significant reactions across the stock, bond, precious metals, and crypto markets.