- Tensions between the U.S. and China are escalating just weeks after a 90-day trade truce.
- Both sides are now accusing each other of violating the agreement.
- These escalating trade tensions can negatively affect financial markets, including crypto.
Tensions between the U.S. and China are once again escalating, just weeks after the two economic superpowers agreed to a 90-day trade truce.
Despite what initially seemed like a diplomatic breakthrough in Geneva, both sides are now exchanging sharp accusations over violations of the deal. And because of this, financial markets, including crypto, could be at risk. Here’s what’s happening and what each side is saying.
The Geneva Agreement
In April, the U.S. and China reached a surprise agreement in Geneva, to pause the brutal tariff war that had seen import duties climb above 100% on major goods.
Both countries agreed to scale back mutual tariffs and spend the next 90 days working toward a more reasonable trade deal.
A major part of the deal required China to ease export controls on rare earth minerals and suspend other non-tariff measures targeting the U.S. However, the optimism was short-lived.
Only a few weeks into the truce, President Donald Trump accused China of violating the deal. He mentioned on his Truth Social account that the country had “TOTALLY VIOLATED ITS AGREEMENT WITH US.”
He also claimed he had made a fast deal to help China “avoid a bad situation” and accused Beijing of taking advantage of U.S.’ goodwill.
China Fires Back
China’s Ministry of Commerce quickly responded, denying the allegations and placing blame squarely on the U.S.. The ministry sent out a strongly worded statement, stating that the U.S. had “unilaterally provoked new economic and trade frictions.”
In addition, it was “undermining the Geneva consensus” through its discriminatory actions.
Beijing pointed out that it had been “strictly implementing” the Geneva deal and said it “firmly rejects these groundless accusations.” Finally, the statement warned that China would take “resolute and forceful measures” if the U.S. continued to be a bully.
Rare Earths at the Heart of the Conflict
A major aspect of the ongoing conflict is China’s control over rare earth minerals. These minerals are important for the production of high-tech products like smartphones, electric vehicles, fighter jets, and missile systems.
The Trump administration expected China to ease restrictions on these exports as part of the Geneva deal. However, China’s export control system remains in place.
Since 4 April, Chinese companies have needed government approval to ship seven major rare earth minerals. This setup doesn’t ban exports outright but allows the government to control who gets what, and when.
That control is the basis of this argument, especially with U.S. officials, who say China is using it as a strategic tool. Treasury Secretary Scott Bessent pointed out in a recent interview that China was deliberately holding back these materials.
How This Affects the Crypto Market
The ongoing trade tensions between these two superpowers directly affects the crypto market in more ways than one. Historically in times of worldwide economic uncertainty, traditional financial markets tend to experience downturns.
This issue is likely to extend to cryptocurrencies.
Investor sentiment is likely to take a hit, as investors are likely to become more risk-averse.
Issues like these tend to lead investors to fly for safety, and with this capital flowing from speculative assets like cryptocurrencies to more stable investments such as government bonds or gold, demand for Bitcoin and altcoins can decrease.
Finally, a trade war like this can disrupt supply chains and lead to a slowdown in economic growth. Enthusiasm for digital assets might dwindle, and as fewer new investors enter the market, existing ones may liquidate holdings to cover other financial obligations.
Overall, this development has more to it than meets the eye, and the crypto industry’s reaction remains to be seen.
