How the Trade War Affects Stock Markets and Cryptocurrencies?

On April 2, 2025, U.S. President Donald Trump declared a state of emergency in the U.S. economy and announced comprehensive new import tariffs. On ‘Liberation Day,’ he set a baseline tariff of 10 percent on all foreign goods, with a staggering rate of 145 percent on products from China. This move was intended as a way to correct long-standing trade imbalances and protect national industries.

China responded almost immediately. Tariffs on imports from the U.S. soared to 125 percent, and restrictions were imposed on the export of rare elements and materials critical to global production. Within a few days, trade between the two largest economies in the world dramatically slowed.

The markets did not take this well. The S&P 500 fell 15 percent in less than a week. The Nasdaq dropped nearly 20 percent by April 7. Investors were shaken by the scale of the escalation and the potential ripple effects on global growth.

Cryptocurrencies were not immune either. As stocks fell and uncertainty spread, Bitcoin experienced a surge in trading volume but recorded a smaller decline compared to the stock markets.

The Impact of Trade Wars on Stocks

Markets dislike surprises and really dislike trade wars.

When the U.S. announced its 145 percent tariffs on Chinese imports in April 2025, the response from Wall Street was swift and brutal. The S&P 500 fell more than 10 percent in just two days. Technology stocks bore the brunt even harder, with the Nasdaq dropping nearly 20 percent since the beginning of the year.

However, looking back at the markets through past trade battles, all of this was quite familiar. During 2018-2019, during the first round of tariff battles between the U.S. and China, every tweet about negotiations or new tariffs ‘broke’ stocks. The Smoot-Hawley Tariff Act of 1930 was one of the earliest and most notorious examples of how tariffs piled up, global trade shrank, and the Great Depression worsened.

So why are stocks so affected? There are several reasons. Tariffs increase the costs of imported goods, which reduces profit margins for companies relying on international supply chains. When an automaker or an electronics brand has to pay more for components, that cost either impacts earnings or is passed on to consumers. In either case, these are bad news for profits, and profits are what drive stock valuations.

There is also the fear factor. Trade wars introduce a lot of uncertainty into the economy. Will additional tariffs follow? Will other countries retaliate? Such unpredictability causes companies to delay investments and hiring, while consumers may start to pull back on spending. This manifests as increased market volatility, often accompanied by the VIX, the so-called ‘fear index’ of Wall Street, which tends to rise in such times.

Central banks sometimes try to cushion the blow by adjusting interest rates or injecting liquidity. But they can have limited effect as the root of the problem in this case is political.

On April 9, Trump announced a 90-day pause on new tariffs for most countries. He explained the pause by saying that people had become ‘a bit yippy,’ which is his way of describing market nervousness.

Cryptocurrencies Take a Hit, Then Bounce Back

Tariffs have also hit cryptocurrencies, but the market recovered just a few days later, reflecting the volatile yet sensitive nature of cryptocurrencies during global uncertainty.

After Trump’s new tariffs were announced, Bitcoin fell to around 76 thousand dollars. Ethereum and other altcoins followed suit, and about 200 billion dollars was wiped off the total market capitalization of the crypto market within a few days.

Again, this type of sell-off is not unusual. When uncertainty rises, as during the sudden escalation of global trade tensions, investors typically play it safe. This means pulling back from more volatile assets, including crypto, and moving to what is considered safer ground, such as cash or bonds.

But as has already been seen, cryptocurrencies can fall quickly, but they can also bounce back just as fast. By mid-April, Bitcoin was trading at just above 85 thousand dollars. Ethereum and other altcoins also recovered.

In 2018-2019, during the earlier round of U.S.-China tensions, Bitcoin exhibited similar patterns: short-term declines followed by rapid recoveries. Earlier in 2025, new tariffs on Canadian and Mexican imports triggered a drop that quickly reversed.

Stocks, meanwhile, are recovering more slowly. In April, the S&P 500 fell by nearly nine percent, and the Nasdaq by more than 13 percent. There was a brief uptick after the U.S. paused some tariffs for 90 days, but overall, sentiment in the stock markets remains uncertain.

What Do Trade Wars Mean for Supply Chains and Consumers?

The consequences of the 2025 trade war are permeating global supply chains, one industry at a time.

From electronics to automobiles to medicine, the costs of moving goods around the world are rising.

Electronics are at the center. In 2024, the U.S. imported 146 billion dollars worth of electronics from China. With the jump in tariffs on those goods, companies could face an additional 182 billion dollars in annual costs if those rates persist.

This is also a problem for consumers. Take Apple, for example. Without a permanent exemption for phones, the iPhone 16 Pro Max could rise from 1,199 to over 1,800 dollars. Add in uncertainties around future tariffs on laptops, chips, and smart devices, and the entire sector is on edge.

Automakers are in a similar situation. The U.S. has raised tariffs on vehicles made in China from 25 to over 100 percent. And it’s not just finished cars; batteries, chips, and other parts coming from China are also caught in the crossfire.

This is a serious blow, especially for electric vehicle manufacturers. Chinese battery components are essential for many American and European electric vehicle brands. With supply chains suddenly tangled in bureaucracy and higher costs, some automakers are pausing production or changing suppliers.

The healthcare system is feeling it too. The U.S. heavily relies on China for key medical supplies and pharmaceutical ingredients. With new tariffs, prices are rising, and existing shortages are worsening.

Industry experts are warning of significant disruptions. Everything from common medications to hospital equipment is likely to become more expensive. And in a healthcare system already under pressure, even minor difficulties can cause major problems.

Rising Tariffs, Shaky Markets, What’s Next?

The big picture of the U.S.-China trade war in 2025 still looks murky amid the real implications for investors, business leaders, and policymakers around the world.

Short-Term Outlook

There has been a small short-term relief. When the U.S. announced exemptions for some tech products, such as smartphones and laptops from the strictest tariffs, the S&P 500 index experienced a surge, and global markets followed suit. Asian tech indices strengthened, and European markets, including Germany’s DAX and the UK’s FTSE 100, rose. Even bank earnings in the U.S. helped to boost optimism a bit.

However, this is likely temporary, and these exemptions are under review.

Medium-Term Outlook

Looking a bit further out, risks are beginning to rise. If the trade conflict drags on, it could seriously slow global growth. JPMorgan recently raised the risk of a global recession to 60 percent, and that is no small matter. Central banks are already weighing their next moves; interest rate adjustments, coordinated actions, and contingency planning are back on the table.

Some voices, like former British Prime Minister Gordon Brown, are calling for a global response similar to what we saw during the financial crisis of 2008. In the meantime, companies are reassessing their supply chains and struggling to find alternatives, something that is easier said than done.

Long-Term Outlook

A potential shift is on the horizon, with countries exploring new trade agreements and trying to reduce reliance on traditional powerhouses. China, for example, is increasingly advocating for the internationalization of the yuan and accelerating its initiative. On the other hand, the U.S. is relying on domestic production and trying to reduce its dependence on imports.

And the consequences could be enormous. The WTO has warned that trade between the U.S. and China could decrease by as much as 80 percent. That is a significant shift, considering that these two countries account for about three percent of global trade. If that decline materializes, it could shake the global economy.