How Trump's Tariffs Are Impacting Chinese Crypto Miners

In recent months, talk of a trade war between the United States and China has hinged on comments made by President Trump. Tariffs on $250 billion worth of Chinese goods took effect earlier this year, and the Trump administration has threatened additional tariffs as well, the net effect of which would impact virtually all trade with China. The full repercussions of the tariffs are not yet known, nor is the exact nature of a potential trade war. Still, there are already signs that many industries in both countries could be impacted. Cryptocurrencies, which are generally seen as a global phenomenon, have largely been kept out of the discussions. And yet, the Trump tariffs could nonetheless have a significant effect on Chinese cryptocurrency mining operations.

A Matter of Classification

Earlier this year, the office of the United States Trade Representative reclassified mining hardware from "data processing machines" to "electrical machinery apparatus," per MarketWatch. The shift may seem small, but it came with a change in import taxes, which moved from 0% to 2.6% in June of 2018.

Because of this change, digital currency mining equipment including graphics processing cards and other rig setup materials has suddenly become subject to a further 25% import tax, which took effect in August. All told, equipment which was taxed at a rate of 0% just earlier this year has effectively ballooned up to a rate of 27.6%, practically overnight.

Effects on Hardware Makers and Miners

Companies and individuals in both the U.S. and China have already been impacted by the tariffs. In the U.S., individuals looking to buy cryptocurrency mining hardware are likely to find that prices are even higher than they already were. In China, where major hardware manufacturers such as Bitmain operate, the effects can be disastrous. The majority of Bitmain's hardware sales involve overseas customers, many of whom are in the U.S. This amounts to more than 94% of $2.7 billion in revenue for 2018 YTD, according to Trust Nodes.

Bitmain has tens of thousands of mining machines in operation in and around China, particularly in remote areas such as Inner Mongolia where electricity costs tend to be lowest. These facilities may not be directly impacted by the tariffs, or at least not in the same way as some of Bitmain's other mining facilities. The company is reportedly building operations in various parts of the United States as well. These locations include Tennessee, Texas, and Washington, among others. Undoubtedly, the extra burden imposed by tariffs on mining equipment will play a significant role in how these and similar facilities by Chinese companies looking to expand operation in the U.S. continue to grow and develop, if at all.

For Chinese companies, the tariffs from the U.S. present an added pressure on top of what they have already experienced with the Chinese government. In September of 2017, Chinese authorities banned cryptocurrency exchanges, in the process forcing business outside of the country and shifting the focus of crypto companies toward hardware manufacturing and mining. Now, U.S. tariffs could make those operations unprofitable in other parts of the world as well. All of this is on top of broader concerns about the future of the cryptocurrency industry as a whole, too; some analysts have suggested that the digital currency space more broadly has lost momentum, or even that it is dead. For Chinese cryptocurrency miners and mining-related companies, the playing field has recently become even more challenging to navigate. Certainly, if the Trump tariffs are eliminated at a later stage, this could reinvigorate movement of Chinese mining operations into the U.S., although there are no indications that this will happen in the immediate future.