LondonFinance
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Management Consulting
By now, you will have seen the results of the US elections with Donald Trump heading for a second term. But what will that mean for the economy? It was widely assumed that he is the more pro-business candidate.
Trump's new administration is expected to adopt a more aggressive stance on trade, particularly with China. He has proposed imposing tariffs of up to 60% on Chinese imports and 10-20% on goods from other countries. The average at the moment is less than 1.5% This might help protect American companies in the short-term (the US are the third biggest exporter globally, but exports only account for 10% of its GDP, but it will hurt exports if countries retaliate. These tariffs could lead to increased inflation as businesses will pass higher costs onto their clients and eventually to retail consumers. This will potentially disrupt global supply chains and prompt retaliatory measures from affected nations. Overall, tariffs are a zero-sum game at best, but it is more likely that the economy (both in the US and globally) will suffer from tariffs.
Trump's fiscal policies are likely to focus on extending tax cuts introduced during his previous term. This includes potential reductions in corporate tax rates and increased government spending, which could stimulate short-term economic growth but may also exacerbate income inequality and increase the federal deficit over time. In contrast, Kamala Harris's approach would have involved raising taxes on corporations and high-income earners while investing in green infrastructure and social programs.
Trump's immigration policies may restrict labour supply, particularly in sectors reliant on (cheap) immigrant workers. This could lead to wage increases in certain industries but also contribute to inflationary pressures - companies will (again) pass these costs onto their customers. The Federal Reserve may respond by adjusting interest rates to manage inflation which would further stifle growth.
The stock market is expected to react positively to Trump's re-election due to anticipated deregulation and fiscal stimulus measures. Historically, markets have performed well under Republican administrations, particularly in the context of tax cuts and reduced regulation.
However, increased trade tensions and uncertainty surrounding global trade dynamics could create volatility in equity markets.
With Trump's proposed fiscal measures likely leading to higher deficits, U.S. Treasury yields are expected to rise. This is likely to result in higher borrowing costs for consumers and businesses, potentially dampening economic growth over the long term. Your stocks might perform better (or at least some of them), but your mortgage will become more expensive, too.
Additionally, if inflation rises significantly due to tariffs, higher wages and increased government spending, the Federal Reserve will be compelled to implement tighter monetary policies, further affecting economic conditions.
Most importantly, the implications of Trump's presidency extend beyond U.S. borders. Emerging markets may face increased pressures due to a stronger U.S. dollar and shifting trade patterns resulting from protectionist policies. Countries heavily reliant on exports to the U.S., particularly in Asia and Europe, could experience economic strain as tariffs alter competitive dynamics (their products and services will become more expensive for their US customers).
Trump's administration is also expected to reverse many environmental regulations established under the Biden administration, potentially boosting traditional energy sectors like oil and gas while hindering renewable energy investments. This shift could lead to lower energy prices in the short term but raises concerns about long-term sustainability and climate change impacts. Solar and wind energy might have crossed a threshold already by being so cheap that other forms of energy have ceased to be viable economic alternatives.
Markets have reacted strongly to Donald Trump's election victory in 2024, with several key trends emerging:
So is Donald Trump a pro-business candidate? The picture is somewhat mixed. His re-election is likely to usher in a period of significant economic transformation characterized by aggressive trade policies, potential fiscal stimulus through tax cuts, and a focus on deregulation. While these measures may provide short-term boosts to certain sectors of the economy and financial markets, they also carry risks of rising inflation, increased federal deficits, and heightened global trade tensions that could have far-reaching consequences for both the U.S. economy and international markets. And do not forget things like the rule of law: if nominations or contracts go to the best connected rather than to the best qualified, inferior outcomes will be the result (unless you are part of the inner circle, of course).
Trump's new administration is expected to adopt a more aggressive stance on trade, particularly with China. He has proposed imposing tariffs of up to 60% on Chinese imports and 10-20% on goods from other countries. The average at the moment is less than 1.5% This might help protect American companies in the short-term (the US are the third biggest exporter globally, but exports only account for 10% of its GDP, but it will hurt exports if countries retaliate. These tariffs could lead to increased inflation as businesses will pass higher costs onto their clients and eventually to retail consumers. This will potentially disrupt global supply chains and prompt retaliatory measures from affected nations. Overall, tariffs are a zero-sum game at best, but it is more likely that the economy (both in the US and globally) will suffer from tariffs.
Trump's fiscal policies are likely to focus on extending tax cuts introduced during his previous term. This includes potential reductions in corporate tax rates and increased government spending, which could stimulate short-term economic growth but may also exacerbate income inequality and increase the federal deficit over time. In contrast, Kamala Harris's approach would have involved raising taxes on corporations and high-income earners while investing in green infrastructure and social programs.
Trump's immigration policies may restrict labour supply, particularly in sectors reliant on (cheap) immigrant workers. This could lead to wage increases in certain industries but also contribute to inflationary pressures - companies will (again) pass these costs onto their customers. The Federal Reserve may respond by adjusting interest rates to manage inflation which would further stifle growth.
The stock market is expected to react positively to Trump's re-election due to anticipated deregulation and fiscal stimulus measures. Historically, markets have performed well under Republican administrations, particularly in the context of tax cuts and reduced regulation.
However, increased trade tensions and uncertainty surrounding global trade dynamics could create volatility in equity markets.
With Trump's proposed fiscal measures likely leading to higher deficits, U.S. Treasury yields are expected to rise. This is likely to result in higher borrowing costs for consumers and businesses, potentially dampening economic growth over the long term. Your stocks might perform better (or at least some of them), but your mortgage will become more expensive, too.
Additionally, if inflation rises significantly due to tariffs, higher wages and increased government spending, the Federal Reserve will be compelled to implement tighter monetary policies, further affecting economic conditions.
Most importantly, the implications of Trump's presidency extend beyond U.S. borders. Emerging markets may face increased pressures due to a stronger U.S. dollar and shifting trade patterns resulting from protectionist policies. Countries heavily reliant on exports to the U.S., particularly in Asia and Europe, could experience economic strain as tariffs alter competitive dynamics (their products and services will become more expensive for their US customers).
Trump's administration is also expected to reverse many environmental regulations established under the Biden administration, potentially boosting traditional energy sectors like oil and gas while hindering renewable energy investments. This shift could lead to lower energy prices in the short term but raises concerns about long-term sustainability and climate change impacts. Solar and wind energy might have crossed a threshold already by being so cheap that other forms of energy have ceased to be viable economic alternatives.
Markets have reacted strongly to Donald Trump's election victory in 2024, with several key trends emerging:
- US Stock Markets: The Dow, S&P 500, and Nasdaq hit record highs, with the Russell 2000 index of small-cap stocks surging over 6%
- Bitcoin: Reached an all-time high of close to $100,000, fueled by Trump's promise to establish a strategic Bitcoin reserve
- US Dollar: Strengthened against major currencies, rising 1%-2% against the yen and euro
- Bond Yields: The yield on 10-year US Treasury bonds rose by about 20 basis points to nearly 4.5%
So is Donald Trump a pro-business candidate? The picture is somewhat mixed. His re-election is likely to usher in a period of significant economic transformation characterized by aggressive trade policies, potential fiscal stimulus through tax cuts, and a focus on deregulation. While these measures may provide short-term boosts to certain sectors of the economy and financial markets, they also carry risks of rising inflation, increased federal deficits, and heightened global trade tensions that could have far-reaching consequences for both the U.S. economy and international markets. And do not forget things like the rule of law: if nominations or contracts go to the best connected rather than to the best qualified, inferior outcomes will be the result (unless you are part of the inner circle, of course).