Economic Developments Since the Trade War: China, Mexico, Canada, and Crypto Markets Respond

Since the initiation of the U.S.-China trade war in 2018 under President Donald Trump, global trade dynamics have undergone significant shifts, affecting economic growth, employment, and market stability. 

The introduction of tariffs on imports from China, Canada, and Mexico was intended to protect U.S. industries and reduce trade deficits, but the prolonged trade conflict has had far-reaching consequences

Escalating Tariffs and Economic Fallout: The Impact of New Trade Policies in 2025

With new tariffs proposed as recently as February 2025, including a 25% tariff on goods from Mexico and Canada and a 10% tariff on Chinese imports, the economic toll continues to grow. 

Analysts predict that these tariffs will reduce U.S. GDP growth by approximately 0.7 percentage points in 2025, with long-term projections indicating a 0.2% GDP decline and a 0.1% reduction in capital stock. 

Additionally, the trade war has contributed to job losses exceeding 300,000 positions, with an additional 142,000 full-time jobs at risk due to the latest measures.

Despite early concerns about inflationary pressures, the U.S. economy managed to sustain price stability during Trump’s first term. 

However, the latest tariffs pose new risks, as importers pass higher costs onto consumers, potentially triggering inflationary spikes. Moreover, Trump’s efforts to curb trade deficits have largely failed, as global supply chains have adapted to the tariffs rather than reducing the U.S. trade imbalance.

As the trade war enters a new phase of tariff escalation, the global economic landscape remains uncertain, with potential price increases, further job losses, and strained diplomatic relations shaping future developments.

Trump’s Trade War: Economic Consequences of the Trade War

Impact on U.S. Growth and Employment

The imposition of new tariffs on China, Mexico, and Canada has had significant consequences for the U.S. economy, including:

• A projected 0.7% reduction in U.S. GDP growth in 2025 due to the latest tariffs.
• A long-term GDP decline of 0.2%.
• A reduction in U.S. capital stock by 0.1%.
• Over 300,000 jobs lost since the trade war began.
• An additional 142,000 full-time jobs at risk due to the new tariffs.

These figures highlight the broader economic risks of prolonged tariff conflicts, particularly in sectors reliant on international trade and supply chains.

Also read: Is Elon Musk Integrating the U.S. Treasury into Blockchain and Cryptocurrency?

Persistent Trade Deficits

One of Trump’s primary objectives in initiating the trade war was to reduce the U.S. trade deficit by making foreign imports less competitive and encouraging domestic production. 

However, despite increased tariffs, trade deficits have continued to grow, as: U.S. companies have struggled to fully replace imports with domestic alternatives; Tariff costs have been passed on to American consumers and businesses, rather than reshaping trade flows; China, Mexico, and Canada have diversified their trade relationships, reducing reliance on the U.S. market.

This has weakened the intended economic benefits of the trade war while exacerbating supply chain disruptions across multiple industries.

China’s Response: Targeted Retaliation & WTO Complaints

China has taken a strategic and selective approach to counteracting U.S. tariffs. Instead of broad retaliatory measures, China has targeted key U.S. industries, including:

• 15% tariffs on liquefied natural gas (LNG) products.
• 10% tariffs on U.S. oil, machinery, and large-engine vehicles, effective February 10, 2025.

These countermeasures, while moderate compared to the extensive U.S. tariffs, serve a dual purpose. Applying economic pressure on specific U.S. industries without significantly impacting China’s own economic growth and positioning China for stronger leverage in future trade negotiations.

Beyond tariffs, China has also:

• Threatened to file complaints with the World Trade Organization (WTO), challenging the legality of U.S. trade restrictions.
• Urged the U.S. to “correct its wrongdoings” rather than imposing arbitrary trade measures.

Despite these tensions, China’s economy has remained resilient, as it continues to strengthen trade partnerships with other global players and invest in domestic supply chain independence.

Also read: Trump’s Federal Spending Freeze: Examining Its Impact on the Cryptocurrency Market

Mexico’s Response: Balancing Trade and Security

Mexico’s reaction to the 25% tariffs on Mexican exports has been measured but assertive. President Claudia Sheinbaum initially announced retaliatory tariffs, but later delayed their implementation for one month following negotiations with Trump.

Key diplomatic moves include:

• Deploying 10,000 National Guard troops to the U.S.-Mexico border to combat drug trafficking—a move aimed at appeasing U.S. security concerns.
• Enhancing border security in exchange for a temporary pause on tariff enforcement.

While Mexico is seeking to avoid direct confrontation, its government has also made it clear that it will defend its economic interests if U.S. tariffs escalate further.

Canada’s Response: Strong Retaliatory Measures

Unlike Mexico’s diplomatic approach, Canada has taken a firm stance against Trump’s tariffs. 

Prime Minister Justin Trudeau announced:

• 25% tariffs on approximately $155 billion worth of U.S. goods, affecting key industries such as alcohol, furniture, and consumer goods.
• Encouragement for Canadian consumers to boycott American products, reinforcing national economic independence.

Trudeau has emphasized that Canada will not yield to U.S. pressure, despite Trump’s threats of further escalations. The deterioration of U.S.-Canada trade relations marks a shift in a historically strong bilateral economic partnership.

Crypto Markets and the Trade War: Bitcoin, Altcoins, and Market Volatility

The ongoing trade war has also impacted the cryptocurrency market, as investors seek alternative assets to hedge against macroeconomic uncertainty.

Bitcoin’s Role as a Safe Haven

Bitcoin (BTC) has surged to local highs amid trade war uncertainty, as investors seek decentralized assets that are unaffected by government policies.

BTC’s dominance has risen to 66% of the total crypto market cap, according to analyst Peter Brandt.

Growing institutional adoption of Bitcoin suggests that digital assets may play a more significant role in financial markets as geopolitical tensions rise.

Also read: Trump’s Zero Crypto Tax Proposal: What It Means for the Industry

Altcoins and Trade-Related Volatility

Ethereum (ETH) and other major altcoins have moved in sync with Bitcoin, reflecting broader investor sentiment.

Meme coins like Shiba Inu (SHIB) and Dogecoin (DOGE) have seen volatility spikes, driven by retail speculation amid global economic uncertainty.

Stablecoins (USDT, USDC) have gained traction as traders seek low-volatility crypto alternatives.

Conclusion

While Trump’s trade war aimed to protect U.S. industries, its real-world consequences have included:

• Reduced GDP growth and job losses.
• Persistently growing trade deficits.
• Strained diplomatic and trade relationships with China, Mexico, and Canada.

As new tariffs come into effect, the long-term impact remains uncertain, with increased consumer prices, supply chain disruptions, and financial market volatility shaping the future.

Meanwhile, cryptocurrencies like Bitcoin continue to serve as a hedge against economic instability, with investors closely monitoring geopolitical developments for further market shifts.

The coming months will be critical in determining whether diplomatic negotiations can ease trade tensions—or if further escalations will deepen the global economic divide.

FAQs

1. How have U.S. tariffs affected economic growth?

The latest tariffs are expected to reduce U.S. GDP growth by 0.7% in 2025, with a long-term decline of 0.2%. Additionally, over 300,000 jobs have been lost since the trade war began, with further job losses anticipated.

2. Has the trade war reduced the U.S. trade deficit?

No, despite higher tariffs, the U.S. trade deficit has continued to grow. Supply chains have adapted, and foreign nations have diversified trade relationships, reducing reliance on the U.S. market.

3. How has China responded to the latest tariffs?

China has imposed selective retaliatory tariffs on U.S. goods, including a 15% tariff on liquefied natural gas and 10% on oil and large-engine vehicles. Additionally, China is challenging U.S. trade policies at the WTO.

4. What is Mexico’s stance on the 2025 tariffs?

Mexico initially announced retaliatory tariffs but delayed enforcement following negotiations. Instead, it has focused on border security cooperation with the U.S. to ease tensions while maintaining its economic interests.

5. How has the trade war impacted cryptocurrency markets?

Bitcoin has surged as investors seek a hedge against economic instability. Institutional adoption of BTC has increased, while altcoins and stablecoins have experienced heightened volatility due to macroeconomic uncertainty.