Trump and the post-Cold War order
It is common to see investment managers talk of how, historically, U.S. elections have had minimal impact on the economy in the long term. This tends to be true outside of short-term stock price volatility, although it could be argued that U.S. Presidents have been following a broadly similar economic playbook since 1992, when Bill Clinton served his first term.
The most recent U.S. election could see this change dramatically. President Donald Trump’s upcoming second term includes plans for the U.S. economy that are notably clearer than those put forward in 2016. They are also far more radical and, if carried out, will signal a significant change from the economic norms that have been in place since the end of the Cold War, and could alter the long-term direction of the global economy.
Trade
“To me, the most beautiful word… in the dictionary today, and any, is the word ‘tariff’”, Trump told podcaster Joe Rogan during a three-hour interview, watched or heard by an estimated 100 million people. “It’s more beautiful than love, it’s more beautiful than anything,” he continued.
Trump’s tariff plans are no secret. He is looking at implementing a baseline 10% charge on all imported goods, as well as a 60% tariff on Chinese imports and up to 100% on cars made outside of the U.S. He also wants the power to place tariffs on countries that place their own tariffs on U.S. goods.
Investment managers and allocators will need to consider a vast array of downstream impacts, however, including but not limited to:
For the European point of view, we recommend ING Bank’s recent paper, "What a Second Trump Term Means for You", although it does make for pessimistic reading. "After the U.S. Election, What’s Next?" from BNP Paribas, meanwhile, gives the global view.
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Tax and regulation
Trump’s intentions regarding tax cuts will be familiar to most people. After all, during his first term, Trump oversaw a host of significant changes to the tax code, including a corporate tax cut and rate decreases at most income brackets. He will chase similar policies this time around.
Changes in regulation promise to be far more radical. Already, Trump has announced the appointment of Elon Musk and Vivek Ramaswamy to the new Department of Government Efficiency (D.O.G.E). The department is looking to make cuts of up to $2 trillion of U.S. government spending through new efficiencies, cuts, and federal agency restructuring. The intention to abolish the Department of Education in order to send money directly to U.S. States has generated the most headlines so far. Mapping out any exact moves beyond this would be an exercise in folly.
Franklin Templeton recently put out a piece looking at potential tax changes and tariffs, “On My Mind: US elections—what’s next for the economy, markets and the Fed?," which we really enjoyed.
Immigration
“Build the wall” was the refrain in 2016, referring to the Mexico-U.S. border. That project moved in fits and starts. Nearly a decade later, Trump very much intends to finish building his wall. Aside from this, he has taken a far more hardline stance to existing illegal immigrants, promising mass deportations numbering in the millions. The appointment of Tom Homan as border tsar backs up how seriously the new administration intends to take this rhetoric. There is also talk of Trump ending birthright citizenship.
Among all of this, Trump seems to want to encourage skilled immigration to increase. In the summer he starred as a guest on the All-In Podcast, where he stated: “You graduate from a college, I think you should get automatically, as part of your diploma, a green card to be able to stay in this country. And that includes junior colleges too." However, the incoming admin did later say that this would only apply to graduates who would not undercut American wages.
Immediate labor shortages? Long-term wage increases for American workers? Reduced government spending? Slower economic growth and fewer technological innovations? As with a lot of Trump policy, it is difficult to see where things will go. With America being the biggest and most important economy in history, however, we’re all going along for the ride.