Crypto and Stocks in New Trade War Phase Amid Rising US-China Tensions

Cryptocurrency and equity markets are entering a new phase of trade war due to escalating U.S.-China tensions. The U.S. will impose steep tariffs on Chinese imports, influencing market dynamics, particularly in high-value sectors. Analysts predict continued correlation between risk assets and highlight the significance of upcoming U.S. Federal Reserve decisions in shaping market recovery. Li Chenggang’s appointment as China’s chief trade negotiator may also impact negotiations going forward.

Amid escalating tensions between the United States and China, both cryptocurrency and equity markets are entering a “new phase of the trade war.” On April 15, the U.S. government announced plans to impose tariffs on Chinese imports, which could reach as high as 245%. This includes a 125% reciprocal tariff aimed at addressing the fentanyl crisis, and Section 301 tariffs ranging from 7.5% to 100%.

Following this announcement, Aurelie Barthere, principal research analyst at Nansen, highlighted that markets have shifted towards high-added-value sectors such as technology and pharmaceuticals. She noted that until a resolution is reached between U.S. and Chinese leaders, risk assets will remain highly correlated. This correlation has led to negative implications for non-U.S. equities.

Since November 2024, stocks and cryptocurrencies have shown increasing correlation, particularly during the recent market correction. Investors are opting to de-risk, primarily avoiding expensive assets, which has been detrimental to both markets. Analysts at Nansen suggest that the recovery of these markets will greatly depend on global tariff negotiations, predicting a 70% likelihood for market bottoms by June 2025.

China has appointed Li Chenggang as the new chief trade negotiator, known for his intense negotiation style and experience from previous U.S. administrations. His presence could impact future negotiations significantly.

As these tariff tensions grow, all attention is now towards the upcoming speech by U.S. Federal Reserve Chair Jerome Powell at the Federal Open Market Committee meeting on May 6. Analysts speculate that any hawkish signals from Powell regarding interest rates may negatively affect risk assets, including Bitcoin. Conversely, a balanced tone could stabilise the markets further after recent recoveries in cryptocurrencies and other risk-oriented assets.

Analysts concluded that while crypto markets are reacting to macroeconomic news, actual fundamentals remain unchanged. Rather, market movements are being influenced by sensitive investor confidence and thin positioning.