U.S.-China Trade War Tariffs Expected to Lower Inflation and Boost Bitcoin
The U.S.-China trade war may reduce inflation in the U.S., potentially benefiting risk assets, including bitcoin. Key points include:
- Trade tensions have escalated with both countries imposing tariffs exceeding 100%.
- Concerns about tariffs leading to inflation have caused bitcoin to drop nearly 20% since February.
- Market-based inflation indicators suggest a disinflationary trend, contradicting Fed's stagflation fears.
- The five-year breakeven inflation rate has declined from over 2.6% to 2.32%, and the ten-year rate from 2.5% to 2.19%.
- Tariffs may act as a one-time cost adjustment, leading to reduced consumer spending and potential price declines.
- Historical analysis indicates tariffs are generally deflationary rather than inflationary in advanced economies.
- Future market movements may hinge on a dovish Federal Reserve stance.