Overview
As of November 5th 2024, Donald Trump was elected to be the 47th president of the United States, back for his second term following his previous win in 2016. Historically Trump’s policies have been very protectionist, employing heavy tariffs, and trade restrictions to support US companies as much as possible. Along with some other policies and ideologies, most investors prior to the election – preparing for a Trump victory – expected Trump to cause some rises to inflation in the US economy. What are markets in for in the next few years, what can we expect to see and will Trump’s policies help of harm the Us economy, and the world?
What are his economic policies for America
A lot of trumps policies are to handle issues he believes are harming the USA as a country, including immigration, climate regulations, geopolitical issues, abortion and such. In this section we will focus on the biggest waves for the economy, taxation and tariffs.
Individuals are seeing some tax relief. Trump wishes to extend components of the 2017 TCJA, which was an act that cut taxes for individuals and corporations, planned to expire in 2025. One of these effects is top tax bracket would be kept at 37% (compared to 39.6% pre TCJA). Trump also plans to eliminate taxes on social security benefits (which is a benefit given to retirees), currently, people drawing these benefits would have to pay taxes on 50-85% of their benefits, percentage depending on the income of retirees.
Businesses and corporations are also going to see some generosity. As part of the TCJA initially, tangible investments and research and experimentation expenditures were not part of taxable income. This was slowly pulled back and restricted since 2022, however Trump wishes to revert this back to its initial state. Additionally the TCJA dropped corporate tax from 35% to 21%, Trump would further lower this to 15%
This clearly loses the government out on a lot of income, according to PWBM, over a 10-year basis, these policies alone would cause losses of $5.8 trillion. Over the 4-year period of trump’s Presidency, it would cause losses of $1.4 trillion.
How about global markets?
As mentioned previously, Trump has plans to impose tariffs. Whilst the exact number is not clear yet, he has described intent to impose tariffs of up to 20% on all imports and up to 60% on Chinese imports. From this alone, some forecasts for US inflation in 2025 rose form 2.3% to 3.1%. due to the heavy tariffs on Chinese imports, the Hang Seng Index fell by 2.2%. The Yen, Euro and Pound also all fell in relation to the Dollar. The US accounts for a 5th of Europe’s total exports. Germany, a large exporter to the US, is one of many countries who will see challenges in the near future due to the presidency.
Trump also vowed to stop military aid for Ukraine against Russian aggression and threatened to go back on his support for NATO allies if they do not sufficiently spend on defence. Many European leaders shared their sentiment to work towards a stronger and more connected Europe.
Needless to say, Trump’s policies are not very globalist and he is very ‘America First’. Beyond the economy, geopolitical tensions are also bound to rise with Ukraine in trouble without US support.
What happened to the stock market
After Trump’s election, the stock market saw huge gains. Both the S&P 500 and the Nasdaq Composite indexes ended at record highs. This was due to corporations seeing lower taxes and extra deregulation allowing for greater profits. The Russel 2000 is an index of smaller companies, it saw a rise of 5.8% reaching its highest level since 2021. This shows that markets expect trumps generosity towards corporations will support potentially smaller businesses who are focused on domestic markets, and the brewing trade war will have less of an effect on them.
- S&P 500 (+2.5%)
- Nasdaq Composite (3%)
- Russel 2000 (+ 5.8%)
The dollar and bond prices also saw huge rises, both seeing their biggest moves in 2 years. As mentioned before, Chinese stocks also fell [Hang Seng (-2.2%)] and global shipping companies, Maersk and Hapag-Lloyd, also saw dips on Wednesday.
- Hang Seng (-2.2%)
- Maersk (-7.6%)
- Hapag-Lloyd (5.8%)
Climate change?
Donald Trumps victory has been taken as a massive blow to climate action on top of everything else. Trump pledged to expand domestic fuel production and focus more on oil and gas as opposed to clean energy. Last time he was in office, President Trump withdrew from the Paris Agreement, which is a commitment to limit the rise of global temperatures above pre-industrial revolution levels. Biden reversed this and rejoined the agreement once he reached office, but many expect Trump to once again drop out of the agreement.
So what's going to happen?
Trump has been very openly ‘America First’, this was not news to anybody. The largest question now is - how far is he going to go? Trump’s tariff terror according to himself is to – at most – impose a blanket 20% tariff on all imports, and 60% for China, however whether the tariffs will even reach this point is up for debate, however some even believe the tariffs will go beyond this level, in the case that the numbers do not have as great of an effect that trump would have hoped. This level of uncertainty is obviously going to cause some risk awareness globally, with the EU looking to strengthen bonds to brace for an economic impact.
For the US economy, growth will be driven upwards in the short run, lower taxes all around for all individuals and businesses will stimulate growth, especially following a slowdown in the past 3 years. However in the long term, the outlook is less clear. Many agree that these policies will be inflationary. US inflation only very recently stabilised and the Fed has only just begun to drop interest rates to stimulate the economy. The biggest fear is that long run inflation will go off the rails with the range of policies that are implemented, some forecasts for US inflation in 2025 rose form 2.3% to 3.1% following Trumps victory. On Thursday the Federal Reserve dropped interest rates once again, the Chair Jay Powell hailed the strength of the US Economy and said he would not resign even if the new president asked him to
The US job market was a big question mark for many economists and investors, for a long time now, job creation and employment have been slowing down, 70% of employers are unable to find suitable employees for their vacancies. Whilst it was not covered as deeply in this article, Trumps plan for mass deportation of undocumented immigrants would certainly harm this, an estimated 11 million people would be removed without any legal hearing.
The future of the global economy seems uncertain; trade, geopolitics, global relations and the global economy all seem to be subject to change. All eyes are on the White House