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Apr, 2025Apr 2, 2025
Trump-Era Leads To Crowdfunding Success. How?
On January 20, 2025, inside the US Capitol in Washington, D.C., Donald Trump, the "political star" who has never stepped down from the spotlight, officially began his second term as President of the United States. Accompanying his inauguration was his bold declaration in the inaugural address: "Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens". Soon, President Trump and his era of "high trade tariff walls" arrived as scheduled.
How Have Tariff Policies Changed?
▲Picture's from Green Worldwide, copyright belongs to original authors
Upon taking office, Trump issued the "America First Trade Policy" memorandum, emphasizing the protection of the U.S. economy and national security through tariffs and trade agreement reviews. In Section 2a of the memorandum, Trump directed the Secretary of Commerce, in consultation with the Secretary of the Treasury and the U.S. Trade Representative, to investigate the causes of the U.S. goods trade deficit, assess its impact on the economy and national security, and recommend measures, including the potential imposition of a global supplemental tariff. In Section 3(a), Trump specifically called for a review of economic and trade agreements with China and encouraged policy actions, including raising tariffs.
On February 1, 2025, the White House issued a fact sheet announcing an additional 25% tariff on imports from Canada and Mexico and an additional 10% tariff on imports from China, citing the national emergency caused by illegal immigration and drug inflows. As the policy progressed, the U.S. recently maintained a 25% tariff on most goods from Canada and Mexico, imposed an additional 10% tariff on Canadian energy exports, and raised the tariff on Chinese goods from 10% to 20%.
In response to U.S. tariff policies, China announced that starting from March 10, it would impose an additional 10%-15% tariff on various U.S. agricultural imports. Meanwhile, Canadian Prime Minister Trudeau stated that Canada would immediately impose a 25% tariff on over $20 billion worth of U.S. imports; Mexican President Sheinbaum also announced that Mexico would impose a 25% retaliatory tariff on U.S. goods. As global trade frictions escalate, countries are taking countermeasures, further tightening the global trade situation.
Rapid Escalation of "Uncertainty"?
From an economic and livelihood perspective, imposing tariffs will lead to rising global commodity prices, increased global supply chain costs, and trade frictions, affecting financial markets and exacerbating economic uncertainty. Additionally, the instability of tariff policies heightens international political uncertainty, prompting more countries to take retaliatory measures, undermining global economic cooperation, affecting global financial markets, leading to increased stock market volatility, and even impacting the stability of the global monetary system. The U.S. imposition of tariffs pushes up global commodity prices, disrupts supply chains, increases business operating costs, and leads to heightened market volatility. Consumer confidence declines, businesses become more conservative in their investments, and global trade activities are suppressed, potentially triggering risks of inflation and economic recession.
Policy Instability Affects Global Decision-Making
The lack of coherence in tariff policies, which may frequently adjust due to domestic political changes, makes it difficult for businesses to formulate long-term strategies. Global supply chains are disrupted, multinational companies face greater operational risks, and governments must reassess their trade partnerships, accelerating supply chain adjustments.
Financial Markets and Geopolitical Risks Intensify
The market's sensitivity to policy changes increases, investor confidence is shaken, capital flows become more conservative, and global stock market volatility rises. At the same time, political tensions caused by trade wars may prompt countries to take confrontational measures, further exacerbating the instability of the global economic and financial systems.
HOW Could This Be Good News for Crowdfunding?
Three scholars—Scott R. Baker, Nicholas Bloom, and Steven J. Davis—proposed an Economic Policy Uncertainty (EPU) index in a paper published on March 10, 2016. The index is based on factors such as news coverage, tax changes, and regulatory shifts to assess market expectations of policy changes. Simply put, the more newspapers mention economic policy instability, the higher the EPU index. A higher EPU index indicates greater market uncertainty about future economic policies, meaning businesses and investors may become more cautious, thereby affecting economic growth and market stability. They found that a rise in the EPU index typically leads to greater stock market volatility, reduced investment in policy-sensitive industries (such as defense, healthcare, finance, and infrastructure), affecting employment rates, and ultimately impacting overall economic growth and labor market stability.
▲Data from Economic Policy Uncertainty
By compiling data from 18 countries (accounting for two-thirds of global GDP), it is evident that with Trump’s first inauguration as a key turning point, the global EPU index reached its highest point since 1997 in early 2017.
▲Data from Economic Policy Uncertainty
At the end of 2024, as Trump’s second inauguration approached, the global EPU index climbed to a new high since 2017.
So, in such significant economic instability brought about by policy uncertainty, why might crowdfunding—a new entrepreneurial financing model born out of the 2008 financial crisis—actually benefit?
Hui-Ching Hsieh and Thi Huyen Chi Vu argued in their 2021 paper titled "The Impact of Economic Policy Uncertainty on Crowdfunding Success" that there is a counterintuitive positive correlation between the probability of crowdfunding success and the EPU index.
In other words, the more chaotic the economic environment, the easier it is for crowdfunding to succeed. By analyzing a dataset of over 200,000 projects from Kickstarter (the world’s largest reward-based crowdfunding platform), they found that EPU not only positively affects the success rate of crowdfunding projects but also has a positive impact on the number of projects, pledged amounts, and funds raised.
This relationship can be explained by the following key reasons:
- Low-Risk Investment Option
Crowdfunding provides a low-risk investment option for individual investors whose portfolios lack diversification during periods of economic uncertainty. Crowdfunding as an investment method has several features beneficial to investors: small investment size, high risk sharing, low transaction costs, and the reversibility of investments during the project period. Therefore, during such times, individual investors reduce their traditional investment activities (such as foreign exchange, stock markets, and real estate) and invest more funds in crowdfunding projects.
- Policy Changes Drive the Rise of Emerging Industries and Innovation
A high EPU index often means greater uncertainty in government policies, which may bring new market opportunities and innovation demands. For example, policy changes may stimulate the rapid development of emerging industries (such as clean energy, technological innovation, and healthcare). Projects on crowdfunding platforms typically include new technologies, products, or services, which are often influenced by market reactions to policy changes or adaptations. Therefore, the rise in the EPU index may drive more innovative projects to emerge, and the success probability of these projects on crowdfunding platforms also increases accordingly.
- Stimulating Altruistic Motivation
The small-scale nature of crowdfunding amounts stimulates investors’ motivation to help others, as such small-scale investments do not fundamentally affect the investors’ wealth. Because international economic instability leads venture capital firms (VCs) to delay or even cancel investments due to reasons such as limited partner (LP) withdrawals, deteriorating exit environments, and cautious investment behavior, this motivation becomes stronger during periods of high economic uncertainty, as startups need to seek financing help from the public more than ever.
- Expected High Returns and Risk Appetite
During periods of greater policy uncertainty, investors’ risk appetite may increase, as they are willing to accept more uncertainty in hopes of higher returns. Crowdfunding projects typically have higher potential returns, especially successful early-stage innovation projects. Therefore, the rise in risk appetite may drive more investors to participate in crowdfunding, enhancing its success probability.
Strategic Suggestions for Chinese Companies Going Global
In the face of global economic uncertainty triggered by Trump’s trade policies, crowdfunding has instead become a resilient and potential financing model. In such an environment, crowdfunding platforms, as flexible fundraising channels, may attract more investors and entrepreneurs, thereby increasing the success probability of crowdfunding projects.
For Chinese companies looking to go global, utilizing crowdfunding platforms could be a strategic choice. Crowdfunding not only provides a source of funding but also helps companies validate the market and build a global customer base. By attracting individual investors seeking low-risk, diversified opportunities, China’s emerging technology companies may find a foothold amidst trade tensions and economic turmoil.
Specific Strategies:
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Focus on Resilient Industries: Prioritize sectors less affected by tariffs, such as technology, healthcare, and green energy. These industries remain attractive during economic downturns and are more likely to draw attention through crowdfunding.
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Highlight Global Impact: Emphasize the international influence and cross-border cooperation of projects in crowdfunding campaigns to attract global supporters and enhance project appeal.
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Optimize Market Validation: Use crowdfunding platforms to test product market demand, reducing the risks and costs associated with traditional market entry.
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