Navigating the Trump sequel: market implications and uncertainties in a second term

Taxes: Pros and cons

Trump has promised to make his 2017 tax cuts permanent (they are due to expire in 2025). He also pledges to ‘rein in’ government spending on areas such as climate subsidies and foreign aid.

PRO: Tax cuts are typically positive for growth retaining what would be tax revenues in the pockets of individuals and companies to spend and invest. As in his first presidency, fiscal loosening like this can be good for business and for markets.

CON: The fiscal deficit in the US is the elephant in the room. In the last 10 years, US government spending has skyrocketed. Tax cuts implemented in Trump’s tenure, along with the Covid-19 stimulus and Biden’s spending under the CHIPS and Inflation Act, many argue the level of US debt is becoming unsustainable. Particularly with cost of debt increasing in a high interest rate environment. A Trump victory, with further tax cuts promised, could push up Treasury yields in the US as investors lose confidence in the likelihood of further debt-ceiling raises and the creditworthiness of the US government.

Deregulation: A balancing act

Trump promises to further reduce the regulatory burden on businesses. He has promised to remove two regulations for every new one proposed.

PRO: A lighter regulatory burden is usually considered to be good for businesses, making it easier for them to operate, expand and trade. Trump 2.0 could therefore be a positive signal on this front.

CON: While it can be a burden, regulation does ensure the safe running of industry, and this is particularly true for financial markets. The rise in regulation since the 2008 Global Financial Crisis has provided confidence in the stability of the financial sector. If Trump’s administration is too heavy handed, deregulation could lead to unforeseen negative consequences down the line.

International relations and trade: America-First agenda

Promising to double-down on his America-First agenda, Trump is touting further restrictions on immigration, a 10% import tariff and becoming more isolationist. He has proposed withdrawing support for Ukraine, withdrawing (again) from the Paris Accord and possibly from NATO.

PRO: Tariffs would be a boost for the US economy. They encourage companies to re-shore overseas operations to the US, which could boost employment. Trump also argues that reducing spend on international affairs will free up capital that can be ‘better spent’ domestically.

CON: Tariffs could have a negative impact on multi-national organisations – which encompasses some of the US’s largest companies – and could disrupt established supply chains. Increasing import costs would put pressure on import prices, increasing the risk of inflation.  

While withdrawing from organisations like NATO is likely to have little impact on the US economy itself, it increases geopolitical risks, which are already running very high across the globe.