Trump Tariffs May Cool Inflation, Paving the Way for Crypto Recovery

Markets Rethink Inflation as Trump’s Tariffs Signal Long-Term Disinflation — Could Bitcoin Benefit?

As trade tensions escalate under President Trump’s renewed protectionist agenda, market signals are beginning to flip the inflation narrative—offering potential upside for bitcoin (BTC) and other risk assets.

Since taking office in January, Trump has reignited a full-scale trade war, launching aggressive tariffs on China, Canada, and Mexico in early February. The retaliatory spiral has intensified rapidly, with combined tariffs between the U.S. and China now exceeding 100%.

Initially, investors feared these moves would reignite inflation. After all, tariffs raise the cost of imported goods, which often gets passed on to consumers. Combined with the Federal Reserve’s recent stagflation warnings—low growth paired with high inflation and job losses—markets responded by retreating from risk.

Bitcoin has shed nearly 20% since early February, mirroring broad declines in equities, bonds, and even the U.S. dollar.

A Shift in the Narrative: Breakevens Move Lower

Despite the headline worries, deeper signals from the bond market tell a different story. Inflation breakeven rates—derived from the spread between nominal Treasuries and TIPS—are sliding.

The five-year breakeven, which touched 2.6% in February, is now down to 2.32%. The 10-year has fallen from 2.5% to 2.19%. These moves suggest traders are betting that inflation may cool rather than surge.

The logic? Tariffs can create an initial shock in prices, but if consumer incomes don’t rise in tandem, demand contracts. That can lead to inventory build-up, lower output, and ultimately disinflation.

Jim Paulsen, a seasoned Wall Street strategist, weighed in on X, saying, “Tariffs have historically been disinflationary. The drop in breakevens is a green light for the Fed to pivot. Rate cuts could be closer than many think.”

Historical Lessons Reinforce the Case

This thesis isn’t new. In 2001, economist Ravi Batra noted that historically, U.S. tariffs were associated with lower prices, not higher. According to Batra, inflation spikes tied to tariffs typically occur in less-developed, non-market economies—not in advanced ones like the U.S.

Bitcoin’s Next Chapter?

If markets begin to price in a softer inflation outlook and potential Fed easing, the tide could turn for bitcoin and other speculative assets. What appeared to be a stagflationary spiral may instead morph into a deflation scare—something that has often fueled rallies in tech stocks and digital assets alike.

With disinflation gaining traction and rate cuts potentially on the horizon, bitcoin may soon find the macro backdrop shifting in its favor.