Trump’s Tariff & M2 Supply

Donald Trump’s Tariff Policy Expected to Increase Global Money Supply (M2), Potentially Boosting Bitcoin Prices

Donald Trump’s tariff policies are expected to significantly increase the global money supply (M2). Given that Bitcoin has a strong positive correlation with M2, there is reason to anticipate a potential price increase in Bitcoin.

The core of Trump’s tariff strategy involves imposing a 60% tariff on Chinese imports and a 20% universal tariff on other nations. The increased uncertainty caused by these policies is already raising concerns of an economic downturn, leading to a decline in 10-year Treasury yields. In addition, Trump is aggressively pushing for spending cuts, including government workforce reductions and defense budget reductions.

Trump’s ultimate goal is a weaker dollar.

Let’s examine how these four factors impact M2. The conclusion is that Trump’s tariff policies and dollar-weakening strategies are likely to increase M2 overall.

If Trump implements tariffs, affected countries are likely to retaliate with countermeasures. Simultaneously, they may attempt to devalue their currencies to make their exports more competitive. This would likely lead to interest rate cuts and quantitative easing (QE) in those countries.

If fears of an economic downturn intensify, central banks are more likely to lower interest rates and inject liquidity through QE.

A decline in Treasury yields translates to rising bond prices. As investors increase their Treasury purchases, central banks may inject additional liquidity to support the market. Some countries might also increase fiscal spending to stimulate economic growth, contributing to a rise in global M2.

Generally, a weakening dollar corresponds to an increase in global M2.

If the U.S. imposes high tariffs on China, Europe, and other trading partners, these countries may respond by devaluing their currencies to maintain export competitiveness. If the dollar remains strong, U.S. exports become more expensive, reducing competitiveness in global markets.
Thus, the Trump administration is likely to pursue a weaker dollar to counteract the negative effects of tariffs.

According to the "Miran Report," authored by Steven Miran, a candidate for Chair of the White House Council of Economic Advisers, in November 2024, Trump is expected to use tariffs as leverage to negotiate currency agreements with affected countries—referred to as the "Mar-a-Lago Agreement." This is akin to the 1985 Plaza Accord, which aimed to artificially devalue the U.S. dollar.

The Federal Reserve may also contribute to dollar weakening by cutting interest rates or injecting liquidity.

A weaker dollar encourages capital inflows into emerging markets, increasing M2 in those economies. Additionally, a weaker dollar leads to higher oil and commodity prices, benefiting commodity-exporting nations and boosting global M2.

Furthermore, a weaker dollar increases investor appetite for risk assets in global financial markets, which also contributes to a rise in M2.

However, spending cuts such as government workforce reductions and defense budget cuts could decrease M2 by reducing consumption and economic activity.

Bitcoin has a 0.94 positive correlation with M2, and historically, this correlation is reflected with a 10 to 12-week lag.

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