The Long-Term Impact of Trade Wars on Forex and Crypto Markets

The world economy is like a giant kaleidoscope. Trade wars, tariffs, and tensions disrupt the colorful interdependence of global markets, changing their patterns to create new, unfamiliar shapes. The impact of the trade war on global economic interdependence is significant, with its effects rippling through various sectors, including Forex and cryptocurrency. 

This guide will illustrate the long-term impact of trade wars on the global economy and how their effects could alter trading patterns for digital assets like Forex and crypto.

GoMoon's AI-powered economic calendar can help you track the economic developments affecting global markets and digital assets. With this tool, you can get timely updates on trade war developments and their impact on global economies, so you'll never be caught off guard.

Table of Content

• What is a Trade War?

• The Long-Term Impact of Trade Wars on Forex Markets 

• How Traders Can Navigate and Profit from Trade Wars

• Use Our AI-powered Economic Calendar Tool for Free Today

What is a Trade War?

A trade war is an economic conflict in which nations impose tariffs, import/export restrictions, or other trade barriers against each other. This creates disruptions in global trade, currency markets, and economic stability. 

Trade wars typically escalate in a cycle of retaliation, where: 

• Country A imposes tariffs on Country B. 

• Country B retaliates with tariffs or restrictions on Country A. 

• Both economies experience rising costs, slowing trade, and increased economic uncertainty. 

Example

The U.S.-China trade war (2018-2020) led to billions of dollars in tariffs, supply chain disruptions, and a significant decline in global trade growth. 

Why Do Trade Wars Happen? 

Governments engage in trade wars for several key reasons: 

Trade Imbalances

When one country imports more than it exports, it runs a trade deficit. Governments may impose tariffs to protect domestic industries and correct the trade imbalance. For example, the U.S. imposed tariffs on Chinese goods in 2018 to reduce its trade deficit with China. 

Economic Protectionism

Governments may restrict trade to support domestic industries against foreign competition. For example, the European Union (EU) imposed tariffs on U.S. steel and aluminum to protect European manufacturers. 

Geopolitical Conflicts and National Security Concerns

Countries may impose economic sanctions or trade restrictions due to political disputes, military conflicts, or ideological differences. For example, the U.S. banned exports of high-tech chips to China in 2023, citing national security concerns. 

Currency Manipulation Disputes

Countries sometimes artificially devalue their currencies to make exports cheaper, leading to trade tensions. For example, the U.S. accused China of devaluing the yuan (CNY) to gain a trade advantage. 

Trade Wars and Their Economic Effects: A Historical Overview

Trade wars have historically reshaped the global economy, causing currency crises, stock market crashes, and economic recessions. 

The Smoot-Hawley Tariff Act (1930)

Worsening the Great Depression The U.S. imposed tariffs on over 20,000 imported goods to protect American industries. Other countries retaliated with tariffs, leading to a massive collapse in global trade. Impact: Global trade dropped by over 65%, worsening the Great Depression. Significant currency devaluations occurred as countries tried to boost exports through competitive devaluations. 

The U.S.-China Trade War (2018-2020)

A Modern Example The U.S. imposed tariffs on $360 billion worth of Chinese imports, accusing China of unfair trade practices, intellectual property theft, and currency manipulation. China retaliated with tariffs on $110 billion worth of U.S. goods and restricted U.S. business activities in China. 

Impact on the Global Economy 

• Currency Market Volatility: The Chinese yuan (CNY) depreciated significantly, leading to higher inflation in China. 

• Stock Market Declines: The S&P 500, Dow Jones, and global indices dropped due to investor uncertainty. 

• Rising Prices: U.S. consumers paid higher prices for imported goods, increasing inflation. 

• Increased Crypto Adoption: Many Chinese investors turned to Bitcoin (BTC) as a hedge against the weakening yuan. 

The Russia- Ukraine Conflict and Global Trade Disruptions (2022- Present) 

Western nations imposed economic sanctions on Russia, including banning Russian oil and gas imports. Russia restricted energy exports to Europe, causing an energy crisis.

Impact on Forex and Crypto Markets

• The Russian ruble (RUB) initially crashed, losing 50% of its value, but later recovered due to strict capital controls. 

• Energy-dependent currencies like the euro (EUR) weakened, leading to higher inflation in the EU. 

• Crypto usage surged in Russia and Ukraine as citizens sought to move wealth across borders. 

Trade Wars and Financial Markets: What Is the Connection? 

Trade wars trigger long-term shifts in financial markets as investors react to uncertainty, inflation risks, and currency fluctuations. 

Effects on Forex Markets 

• Safe-haven currencies strengthen (USD, JPY, CHF) as investors seek stability. 

• Export-driven currencies weaken (CNY, EUR) due to reduced trade demand. 

• Central banks adjust interest rates to counteract economic slowdowns. 

Example: The USD strengthened during the U.S.-China trade war, while the CNY weakened due to slower economic growth.

Effects on Crypto Markets Bitcoin 

• Demand increases as investors look for non-governmental assets. 

• Stablecoins like USDT and USDC gain popularity in countries experiencing currency devaluation. 

• Decentralized finance (DeFi) grows as users seek alternatives to traditional banking systems. 

Example: During the U.S.-China trade war, Chinese investors used Tether (USDT) to bypass capital controls.

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The Long-Term Impact of Trade Wars on Forex Markets 

Trade Wars and Currency Depreciation: The Direct Impact of Tariffs and Sanctions

When a country faces heavy tariffs on its exports, its economic growth slows, reducing demand for its currency. Investors lose confidence in the affected country’s economy, leading to capital flight and currency depreciation. Central banks may devalue their currency intentionally to make exports cheaper and counteract the adverse effects of tariffs. 

Example 

During the U.S.- China trade war (2018-2020), the Chinese yuan (CNY) depreciated from 6.3 to 7.2 per USD due to reduced demand for Chinese exports. After Russia faced Western sanctions in 2022, the Russian ruble (RUB) initially crashed by 50% before stabilizing due to strict capital controls. 

The Rise of Safe-Haven Currencies During Trade Conflicts

When trade wars escalate, investors move capital into safe-haven currencies like the U.S. dollar (USD), Japanese yen (JPY), and Swiss franc (CHF). Countries with stronger economies and stable policies attract forex traders looking for security. 

Example

During the U.S.-China trade war, the Japanese yen (JPY) appreciated against most currencies as investors sought safety in Japan’s economy. In 2022, the Swiss franc (CHF) gained value as a safe-haven asset after the Russian invasion of Ukraine led to trade restrictions. 

Trade Realignments: How Countries Form New Economic Partnerships

Over time, trade wars force countries to establish new trade agreements, impacting forex markets. Nations affected by tariffs seek alternative export markets and reduce reliance on previous trade partners. 

Example

After the U.S. tariffs on Chinese goods in 2018, China strengthened trade ties with the European Union, India, and Africa, reducing dependence on the U.S. As a trading bloc, the rise of BRICS (Brazil, Russia, India, China, South Africa) has led to currency diversification, reducing reliance on USD transactions. 

Why Central Banks Intervene in Forex Markets During Trade Wars

Some governments intervene in forex markets to weaken or strengthen their currencies. Countries accused of currency manipulation often face additional trade restrictions from significant economies. 

Example

In 2019, the U.S. labeled China a “currency manipulator,” claiming it was devaluing the yuan to make exports cheaper. The European Central Bank (ECB) intervened in 2022 to prevent the euro from falling below parity with the USD as trade disruptions caused an economic slowdown. 

How Central Banks Adjust Interest Rates to Counteract Trade War Effects

When trade wars cause economic slowdowns and inflation, central banks adjust interest rates to stabilize their currencies. Higher interest rates attract foreign investment, strengthening the currency. Lower interest rates boost domestic economic growth but weaken the currency. 

Example

The U.S. Federal Reserve cut interest rates three times in 2019 to counteract the economic slowdown caused by tariffs on Chinese imports. The Chinese central bank (PBOC) reduced lending rates and injected liquidity into its financial markets to support monetary stability. 

Inflation Surges Due to Higher Import Costs

Tariffs increase the cost of imported goods, leading to higher inflation in the affected country. Consumers and businesses pay more for essential goods, reducing purchasing potential and economic growth. 

Example

After the U.S. imposed tariffs on Chinese electronics and machinery in 2018, inflation rose as businesses passed costs onto consumers. 

Slower GDP Growth in Trade-Dependent Economies

Export-heavy economies suffer from lower production and declining foreign investment—countries reliant on imports experience supply chain disruptions, reducing economic output. 

Example

Germany, a major exporter of cars and machinery, experienced slower GDP growth in 2019 due to the trade war’s impact on global demand. 

Forex Market Volatility Increases as Investors React to Trade Uncertainty

As trade policies shift, currency traders adjust their positions rapidly, leading to forex volatility. Unexpected tariff announcements cause sharp movements in major currency pairs. 

Example

The U.S. dollar index (DXY) fluctuated wildly during the U.S.-China trade negotiations, moving up and down based on political statements. 

Trading Safe-Haven Currencies in Times of Uncertainty

Investors seek stability during trade conflicts and long on USD, JPY, and CHF. They avoid high-risk currencies from countries directly affected by tariffs and trade sanctions. 

Example

Forex traders went long on USD/JPY in 2019 as U.S.-China trade tensions escalated, causing the yen to gain value. 

Using Technical Analysis to Identify Trade War-Induced Forex Trends

Monitor long-term support and resistance levels on major currency pairs. Use Fibonacci retracements and Bollinger Bands to spot volatility-driven entries and exits. 

Example

Traders used Bollinger Bands to capture breakout movements in EUR/USD as the trade war drove sharp swings in market sentiment. 

Hedging Strategies to Protect Against Currency Devaluation

Use forex options and futures contracts to hedge against trade war-induced volatility. Diversify into multiple currency pairs to reduce exposure to trade disputes. 

Example

Forex traders hedged against CNY depreciation by shorting USD/CNY while holding gold or Bitcoin as alternative assets. 

GoMoon: The Smarter Way to Track Economic Events

GoMoon transforms economic calendar data with AI-powered insights for smarter trading decisions. Our platform analyzes global events and rates their market impact on a scale of 1 to 10, helping you understand how they'll affect various assets. We've packed everything traders need: live economic event streaming, custom notifications, and historical event replay with TradingView charts. What sets us apart is our comprehensive approach to event analysis. 

Whether you're tracking the impact of major economic announcements or comparing forecast data with actual outcomes, GoMoon provides straightforward, actionable insights. You can personalize your calendar, stream live meetings directly on the platform, and analyze historical events like the dot-com bubble or the COVID-19 crash to understand market reactions better. GoMoon clarifies the complex world of economic events for traders seeking data-driven decisions. Get started for free to get AI-powered economic insights today.

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How Traders Can Navigate and Profit from Trade Wars

A. Using GoMoon.ai to Track Trade War Events and Market Impact

Trade wars create rapid and unpredictable market fluctuations. To trade effectively, traders must stay ahead of government policy changes, central bank actions, and investor sentiment shifts. GoMoon.ai provides real-time economic event tracking and AI-driven market impact analysis to help traders react swiftly and make data-driven decisions.

1. Personalizing Trade War Event Tracking with GoMoon.ai

Trade disputes impact currency valuations, stock indices, and crypto prices. It is crucial to monitor related economic events. GoMoon.ai allows traders to customize their calendar to focus on key trade war-related events such as: 

• Tariff announcements and trade policy shifts by significant economies (U.S., China, EU).

• Central bank interest rate decisions and inflation reports linked to trade conflicts.

• Sanctions, embargoes, and supply chain disruptions are impacting global markets.

A trader expecting new U.S. tariffs on China can set up custom notifications on GoMoon.ai to receive real-time updates on economic policy changes. By tracking these events, traders can anticipate Bitcoin price movements in response to yuan devaluation or capital flight into stablecoins.

2. AI-powered event Impact Analysis for Crypto Traders

GoMoon.ai evaluates how global events impact market trends and ranks their significance (e.g., on a scale of 1-10). Crypto traders can use AI-driven insights to gauge how trade conflicts affect Bitcoin, stablecoins, and altcoins. For example, U.S.-China trade tensions historically impact Bitcoin demand as Chinese investors seek to hedge against the weakening yuan. 

GoMoon.ai assigns a high-impact score (e.g., 9/10) to major trade war events affecting forex and crypto markets, helping traders prepare for volatility. If GoMoon.ai predicts a significant economic event will impact crypto markets, traders can enter long positions in Bitcoin if trade war uncertainty drives capital into crypto. Next, stablecoin supply growth must be monitored to confirm whether fiat money flows into digital assets.

3. Setting Custom Notifications for Market-Moving Trade War Announcements

GoMoon.ai enables traders to set up notifications for trade war developments, ensuring they never miss critical economic updates. Custom alerts can be configured for: 

• Government statements on new tariffs, sanctions, or trade agreements. 

• Federal Reserve or ECB policy responses to trade-related economic slowdowns. 

• Stock market reactions to trade disputes that could spill over into crypto volatility. 

A trader worried that U.S. sanctions on Russia will affect Bitcoin liquidity can set GoMoon.ai alerts for sanctions-related economic meetings. If an alert signals upcoming regulatory action, traders can adjust positions before the market reacts.

4. Streaming Live Economic Events for Immediate Market Insights

Trade-related economic meetings and government statements affect market sentiment instantly. GoMoon.ai streams live coverage of key financial events, allowing traders to react in real time. For example, when a U.S. trade official announces new tariffs, Bitcoin could spike as investors seek alternatives to fiat. 

With GoMoon.ai’s live economic event streaming, traders can monitor speeches, policy updates, and press briefings as they happen.  Watch GoMoon.ai’s live event stream and enter trades based on real-time reactions. Use short-term scalping strategies to profit from immediate price volatility.

5. Replay and Analyze Historical Trade War Events with GoMoon.ai

Historical data helps traders understand how previous trade wars impacted financial markets. GoMoon.ai’s replay function allows traders to analyze past events and their market effects. Traders can build a strategy for future trade war scenarios by studying historical price movements. 

For example, a trader analyzing the 2018-2020 U.S.-China trade war can use GoMoon.ai to review past Bitcoin price responses to tariff escalations. By identifying recurring patterns, traders can anticipate how new trade conflicts might influence BTC price action.

B. Trading Strategies to Profit from Trade War-Induced Crypto Volatility

1. Using Bitcoin as a Safe-Haven Asset During Trade Conflicts

Bitcoin’s correlation with fiat devaluation makes it a prime hedge during trade wars. GoMoon.ai’s AI-powered impact analysis can confirm when BTC demand rises due to economic uncertainty. Enter long positions on BTC when GoMoon.ai signals rising capital flows into crypto. Use stablecoin inflows to verify before placing high-leverage trades.

2. Exploiting Stablecoin Premiums in Sanctioned Countries

During trade restrictions, stablecoin demand surges in affected regions, creating price premiums on local exchanges. GoMoon.ai helps traders track these supply shifts, identifying arbitrage opportunities. Buy stablecoins on global exchanges and sell at a premium in restricted economies. Use GoMoon.ai’s alerts for sudden changes in stablecoin exchange rates.

3. Trading Crypto Futures and Perpetual Contracts on High-Impact Economic Events

Volatility increases when governments impose new tariffs, leading to significant price swings. GoMoon.ai ranks these events by market impact, helping traders anticipate profitable futures trades. Go long on BTC/ETH futures before high-impact events that favor crypto adoption. Use GoMoon.ai’s live event notifications to adjust leverage based on volatility expectations.

C. Risk Management Techniques for Trading During Trade Wars

1. Adjusting Stop-Loss Levels Based on Event Volatility

Trade wars cause extreme price swings, requiring dynamic risk management. GoMoon.ai’s AI-driven market impact scores help traders adjust stop-loss settings based on expected volatility. Use wider stop-losses on high-impact days to avoid being stopped by short-term market noise.

2. Monitoring Institutional Crypto Activity for Market Signals

Large investors often reposition during economic uncertainty. GoMoon.ai tracks on-chain movements, helping traders spot whale activity in response to trade disputes. If GoMoon.ai detects large BTC withdrawals from exchanges, expect increased demand and adjust trades accordingly. 

GoMoon: The Smarter Way to Track Economic Events

GoMoon transforms economic calendar data with AI-powered insights for smarter trading decisions. Our platform analyzes global events and rates their market impact on a scale of 1 to 10, helping you understand how they'll affect various assets. We've packed everything traders need: live economic event streaming, custom notifications, and historical event replay with TradingView charts. What sets us apart is our comprehensive approach to event analysis. 

Whether you're tracking the impact of major economic announcements or comparing forecast data with actual outcomes, GoMoon provides straightforward, actionable insights. You can personalize your calendar, stream live meetings directly on the platform, and analyze historical events like the dot-com bubble or the COVID-19 crash to understand market reactions better. GoMoon clarifies the complex world of economic events for traders seeking data-driven decisions. Get started for free to get AI-powered economic insights today.

Use Our AI-powered Economic Calendar Tool for Free Today

Trade wars begin when one country imposes tariffs or trade barriers on another and the second country retaliates with similar measures. This back-and-forth can escalate quickly, creating an environment of economic uncertainty and harming global trade. 

As businesses and consumers react to changing import and export costs, economies can slow significantly.  For example, the trade war between the United States and China began in 2018 and has been linked to a slowdown in global economic growth.

The Impact of Trade Wars on Economies 

The impact of trade wars can be devastating. When the U.S. and China began imposing tariffs on each other’s goods, the world braced for a recession. Countries that rely on exports, such as Germany, were particularly vulnerable to the fallout of a trade war. As economic data began to show signs of distress, businesses and consumers lost confidence, which only exacerbated the situation. 

How Trade Wars Affect Financial Markets 

Financial markets dislike uncertainty, and trade wars create a lot of it. As countries impose tariffs on each other’s goods, businesses face higher costs and lower profits. Investors react by selling off stocks, particularly companies with significant exposure to the countries involved in the trade war. Additionally, as economic data shows signs of distress, markets can tumble further as businesses and consumers lose confidence.

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