Beijing vows to fight to the end as markets brace for fallout
China is mixing tough talk with diplomacy, warning it will “fight to the end” while leaving the door open for talks to protect its economy. This stance accelerates the world’s drift into competing economic blocs and alters the rules of trade, capital flows and investor behavior.
The United States and core allies (Europe, Canada, Japan, South Korea) are already pursuing “de‑risking”: shifting critical production and supply chains out of China, especially in high tech and rare earths. In response, China and its partners, including Russia and North Korea, are expanding intra‑bloc trade and seeking alternative payment channels.
The potential introduction of broader tariffs on Chinese goods, according to Federal Reserve analysis, could deliver a global shock, with estimates pointing to a reduction in world GDP of about 0.7% and, with second‑round effects, up to 1%.
During periods of geopolitical strain, the dollar typically strengthens: capital moves to the US, and dollar funding and settlement outside the US become more expensive. That pushes other economies to seek alternative sources of finance and payments within their alliances, fragmenting the global capital market into blocs.
One of China’s most likely responses is yuan devaluation. A decline of 10% or more would make Chinese exports cheaper in foreign currency and partially offset the impact of US tariffs. A weaker yuan can weigh on US equities and reduce Chinese companies’ dollar revenues. While it may lower the overall cost of the trade conflict for Washington, it increases domestic financial strain for Beijing. For investors, this implies sharper price swings and different playbooks across time horizons.
In risk‑off spells, market participants tend to sell risk assets and build cash buffers. When conditions calm, attention shifts to companies and sectors that benefit from supply‑chain reconfiguration: industrial automation and robotics makers, industrial‑park developers and logistics carriers. Part of the demand naturally flows to new manufacturing hubs (Mexico, Vietnam, India, Malaysia).
On the crypto market, two layers of effects are likely.
During periods of tension and a rising dollar, BTC and large‑cap crypto assets behave like risk assets: volatility spikes and demand for stablecoins rises as a parking place for liquidity. If the situation drags on, the role of stablecoins in cross‑border payments and “crypto‑dollarisation” strengthens, and yuan pressure could push more capital into Bitcoin and dollar-pegged tokens as a capital‑preservation tool.
Higher barriers between blocs further fracture liquidity across venues in different jurisdictions and widen price gaps during stress. In parallel, regulatory risks (new sanctions and targeted wallet blocks) may increase, adding sharpness and unpredictability to price moves.
Near‑term dynamics will depend on the speed of tariff decisions and the scale of China’s policy response. While risks are rising, there’s still room for negotiations, allowing for a more managed shift toward economic blocs.
