Market Outlook Under the New US-CN Tariff Deal

TL;DR

The US-China tariff deal offers short-term stability by easing inflation and delaying debt ceiling risks, but long-term challenges (sticky inflation, rising Treasury yields, and trade realignments) remain. Traditional markets face headwinds, while crypto (BTC, ETH) and gold may gain traction as hedges against volatility and dollar weakness.

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Over the past few days, major media outlets have been flooded with news about the latest US-China tariff deal. While the successful signing of the agreement has unsurprisingly fueled positive sentiment in traditional markets, the euphoria calls for a closer analysis of the deal’s implications — particularly for the crypto market.

The Urgency Behind the US Push for a Deal

While a trade agreement between the world’s two largest economies is a welcome development, the urgency from the U.S. side to finalize the deal cannot be ignored. The U.S. faces mounting pressure from rising long-term Treasury yields, which exacerbate the financial burden of servicing its debt and threaten economic growth. The looming “X Date” — the point at which the U.S. Treasury risks defaulting on obligations unless Congress raises or suspends the debt limit — is projected to occur between August and early October. This aligns closely with the 90-day deadline tied to the latest tariff agreement.

A key motivation for the U.S. to secure this deal may be to stabilize Treasury yields. By easing trade tensions, the U.S. likely aims to bolster demand for its bonds and curb further yield spikes, which could spiral if additional debt issuance coincides with waning investor confidence.

An Agreement of Limited Impact

US2Y rose despite the successful agreement (TradingView)

Similar to US2Y, US10Y rose after the announcement (TradingView)

USD index dropped right after 12 May deal announcement (TradingView)

Does the deal meaningfully reduce Treasury yields or alleviate recession and inflation risks? Partially, but its effects are constrained. Following the agreement’s announcement on May 12, both the 2-year and 10-year Treasury yields increased, while the USD Index (DXY) declined. These movements suggest lingering skepticism about the U.S. bond market and the dollar’s strength.

That said, the tariff reductions on Chinese goods should provide short-term relief to U.S. inflation by lowering import costs. If sustained, this could marginally reduce stagflation risks. However, the broader structural challenges — sticky inflation, elevated debt levels, and shifting global trade patterns — remain unresolved.

Short-Term Stability, Long-Term Uncertainty

Japan is the largest holder of US treasury bond, followed by China (Statista)

The deal buys time for both nations to recalibrate their trade strategies. The U.S. may pursue similar agreements with other key partners, such as Japan (the largest holder of U.S. debt), to restore confidence in the dollar. Meanwhile, China is likely to accelerate trade diversification through partnerships with BRICS+, ASEAN, and other regions, reducing reliance on U.S. markets.

These shifts could gradually reshape the global trade order ahead of the next tariff negotiation deadline in August 2025. In the interim, relative stability is expected, though underlying tensions persist.

Looming Inflation and Instability

Durable goods CPI is showing signs for upward trend (WolfStreet.com)

While the deal sets a precedent for U.S. negotiations with other nations, the baseline 10% tariff on imports signals that U.S. consumers and businesses should brace for structurally higher prices. The U.S. CPI data already hints at this trend: durable goods prices (e.g., imported vehicles) are declining at a slower pace and may soon pivot to outright increases as tariff effects materialize.

Core CPI 6-months annualized figure remains sticky (WolfStreet.com)

Similar to Core CPI, general CPI follows with sticky 6-month annalized figure (WolfStreet.com)

Although headline and core CPI growth have moderated, their 6-month annualized rates remain stubbornly elevated. This “stickiness” complicates the Federal Reserve’s path to rate cuts and could fuel demand for higher Treasury yields as inflation expectations rise. By August 2025, concerns over surging bond yields near the X Date may reignite market volatility, compounded by persistent inflation and geopolitical friction.

Implications for Crypto Markets

Traditional financial assets — particularly Treasuries and the dollar — face headwinds from debt sustainability concerns and inflationary pressures. In contrast, gold and major digital assets (e.g., BTC, ETH) could benefit as hedges against risk aversion and currency debasement. As global tensions and fiscal uncertainties mount, the narrative of crypto as “digital gold” may gain renewed traction among investors seeking alternatives to conventional safe havens.