Recently, the United States and the People’s Republic of China engaged in what is generally referred to as the US-China Trade War. This is an economic conflict between these two countries that are considered two of the largest economies in the world. However, What caused the power tussle between them?
The US president, Donald Trump, initiated this conflict. He customarily kept increasing trade barriers on China to weaken the country’s economic ties with the US. Moreover, he attempts to weaken China’s economic powers as well, citing some diplomatic excuses for his actions.
He alleged that China was engaging in several “unfair trade practices” that include intellectual property theft, growing trade deficit, and the transfer of American technology to the Asian country. In a bid to stop this, he raised tariffs on Chinese products entering the country.
In retaliation, the Chinese government raised tariffs on $75 billion worth of some U.S. goods. The retaliatory move doesn’t go well with the global economy.
Effect on their Economies
The ongoing economic war is having a negative impact on both countries. Since they have severed trading ties, it is difficult for them to continue carrying out businesses with each other.
However, the effect of this war is not limited to both countries only. Even the diplomatic breakdown between these economic giants affected the neutrals.
Globally, the trade fight has roiled investment markets and dampened world economic outlook. Domestically, American businesses from farmers to manufacturers to tech firms have been hurt by the tariffs and are urging both sides to refrain from further escalation.
For instance, the cryptocurrency industry is equally feeling the heat of the war. How?
The Implication on Cryptocurrency
Back in 2018, China issued a ban on any and all crypto activities, including all access to international exchange platforms. And according to Zhou Xiaochuan — the ex-governor of the People’s Bank of China — local financial institutions have been instructed by regulators that digital currencies should not be recognized as tools for retail payments.
The website sited a heartbreaking example for cryptocurrency enthusiasts. It said:
The use of a mobile messenger as a consumer payments platform is already a proven application in China, where WeChat Pay and AliPay are the dominant payment providers (neither of which currently use a blockchain-based cryptographic asset).
The S&P recently conducted a survey that found 90% of adult internet users in China use WeChat Pay, 94% use Alipay and 86% use both. This duopoly also becomes a factor in the global payments clash between East and West.
China’s rejection of cryptocurrency is a bad omen for the industry. Considering the huge population of that Asian country that holds approximately 20% of the entire human population, the digital currency industry will lose a substantial number of users, an action that may have a lasting adverse effect on digital currencies.
In the past, China has successfully created parallel products to establish herself as an independent country when faced with stiff opposition from foreign investors. If it tows that path again, the crypto industry will lose millions of potential Chinese users.
Another Twist to the Implication
There is another angle to this war. According to an article, Bitcoin price increased on the day that President Donald Trump announced the trade war:
The abrupt Bitcoin price rally was largely put down to the escalating U.S. China trade war that’s been stoked by President Donald Trump and yesterday caused China’s yuan currency to weaken to its lowest point in more than a decade.
Going by his words, it is safe to admit that the ongoing trade war is beneficial for digital currencies.
According to the news source, the local currency fell to the lowest level for six good months. The first sign came immediately Beijing responded to Donald Trump’s trade war pronouncement.
Andy Brenner, a senior official at National Alliance Securities made this contribution in an interview reported by CNBC. The Head of International Fixed Income said:
While we do not see the direct flows of who is buying Bitcoin, we can see that the bid for Bitcoin in this latest run has coincided with a big downtick in the value of the Chinese Yuan versus the dollar.
Quoting some analysts, Cointelegraph also draws a parallel between Bitcoin’s astronomical rise in price and the falling Yuan. It said:
Analysts have drawn parallels between the declining rate of the yuan and Bitcoin’s growth. The price of the preeminent digital currency rose sharply the very moment when the Chinese currency fell by 7% to an 11-year low.
China may be poised to enforce the use of local currency among the citizens. Their aim is to reduce the impact of digital currency on their economy. So, it is pretty clear that cryptocurrency will not enjoy much support from China.
Events in the coming years will show what the final output will be. Cryptocurrency investors and enthusiasts are looking forward to the future with the hope that the war will affect the industry positively.
It is safe to say that the trade war has had both positive and negative effects on cryptocurrency so far. However, it is unclear if that trend will continue for long or not.