The drawn-out time period of U.S. Presidential elections, from the first primaries and caucuses (nominating individual candidates) through to election day, leads to there being an element of surrealism by the time the results finally arrive. Moreover, 2024’s cycle has been unlike any other, including, but not limited to, two assassination attempts, a debate performance so poor it ended a sitting President’s candidacy, the nomination of a Democratic candidate without the vote of a single delegate, Cheney’s supporting Democrats and Kennedys supporting Republicans, and podcast interviews that arguably surpassed in importance the outputs of many traditional media companies.
And yet, at the end of a campaign unlike any in history, the electoral map looks very similar to 2016, with Trump adding Nevada to his list of swing states successfully won and wrapping up all seven of the swing states as a result. The Republicans successfully took both the House and the Senate, meaning they will shortly have control of the executive, legislative and judicial (Supreme Court) branches of government.
There are many domestic, global, and geopolitical implications of a second Trump term. In this piece we shine a light on some of these areas, noting of course the dynamic nature of the situation, the unpredictability of Trump, and the range of events that might play out even ahead of President-elect Trump’s inauguration on 20th January 2025.
Tariffs and global trade
One of the centrepieces of the Trump campaign was the promise of broad-based tariffs on goods imported into the U.S. The newly elected President has suggested on several occasions that tariffs of 10-25% could be implemented, with higher tariffs directed at goods imported from China, Mexico and Canada specifically. One of the stated goals of such a policy is to generate revenue to enable fiscal breathing space, potentially enabling the lowering of taxes and paying off of debt.
However, protectionist policy approaches such as tariffs risk disrupting supply chains, raising costs of production and potentially leading to higher consumer prices (inflation). They would also be likely to lead to reactionary economic policies from foreign governments, risking making it more difficult for U.S. companies to sell to markets abroad.
In light of this the market impact is uncertain – as with many of Trump’s policies, there is likely a fine line that it’s possible to tread that may lead to the successes his supporters so deeply believe in, with a resulting positive impact on the U.S. fiscal position and, for example, the performance of global risk-on assets (indeed, we have seen such assets, including global equities, rally since the results of the election were announced).
However, simultaneously, that line may be somewhat thin, and there is scope for Trump’s policies to be misplaced or overplayed and have a corresponding negative impact. To some extent the successes of Trump’s policies will be determined by the ability and competence of the individuals he puts in place to lead U.S government agencies and other high-level positions. They will also be impacted by the reaction to the policies from other countries around the world, particularly where there are significant deviations from recent policy-norms. Nonetheless, what is undeniable is that a larger policy window has been opened by Trump’s victory, in which space has been created to enact some potentially radically different approaches, and the ultimate outcomes of these are both complex and unclear at this point in time.
Taxation
Another area of Trump’s policy positioning comes in relation to taxation. While campaigning, Trump voiced his support for additional tax breaks for individuals (and the potential extension of his Tax Cuts and Jobs Act, signed into law in 2015 and set to expire in 2025), cutting the corporate tax rate from 21% to as low as 15%, and even ending the federal income tax. He has put forward tariffs, as outlined above, as one potential method of funding for this.
It goes without saying that the political reality faced here is markedly different to the softer reality experienced on the campaign trail. It is quite possible that Trump seeks to enact significant tax reform, however his hands are inevitably somewhat tied by the wider U.S. fiscal position.
Deregulation
One of Trump’s proposed core policy stances is that of deregulating various industries, ranging from finance to energy. Those in favour of such a policy approach make the case that widespread deregulation can help fuel economic expansion, with a lighter regulatory burden leading to lower compliance costs, freeing up business to drive for growth.
On the other hand, the potential pitfalls of regulatory rollbacks are quite easily envisioned, ranging from environmental degradation to a finance sector gone wild (with the great financial crisis being one case study among many of the potential negative outcomes this can lead to). Similarly, there’s no doubt that Trump’s statements have been somewhat aggressive and targeted, including promises to fire Gary Gensler, the Chairman of the U.S. regulatory agency the Securities and Exchange Commission (SEC). Indeed, on 21 November, Gensler announced he would be stepping down from his role on the date of Trump’s inauguration – showing the power of the incoming President (even though whether Trump could have forced him to do so is another question).
Alongside this, Trump has announced that tech billionaire Elon Musk will be appointed alongside biotech investor (and former Republican presidential candidate) Vivek Ramaswamy to lead a new ‘Department of Government Efficiency’. With the acronym of the name a nod to the infamous cryptocurrency that Musk has repeatedly promoted on his social media company X, formerly Twitter, the new entity is not expected to be a formal government department, but of an advisory nature only. Nonetheless, it seems the intention behind the initiative is real, with the goal being for Musk and Ramaswamy to help find areas of cost cutting and efficiencies, across the sprawling U.S. government bureaucracy.
While there are no doubt many efficiencies to be found, there is also a limit on the extent to which cuts can be made before they become self-defeating, for example in the case of large-scale layoffs of government employees leading to higher benefit claims, and therefore higher rather than lower government spending as a result.
The devil will, as always, be in the detail and so we will watch closely as the depth and breadth of the Trump administration’s changes to regulation and the operation of the government become apparent over the coming months.
Climate change and sustainable investing
One policy area that Trump has undeniably been antagonistic to, is that of climate change, green energy, and the sustainable investment industry more broadly. One of the policy platforms Trump ran on was the rollback of green regulations that currently limit oil and gas drilling and coal mining, and the withdrawal of all unspent funds under the Biden administration’s ‘Inflation Reduction Act’, which included numerous clean energy measures.
While it’s clear that Trump is not the ‘pro-green’ candidate by any stretch of the imagination, our concerns here are somewhat tempered compared to some of the commentary we’ve seen in the wider financial press. Most importantly, we would note that Trump is first and foremost a pragmatist, and an individual who prides himself on his negotiating abilities and commercial acumen. If one operates with the assumption that Trump is entering power with the goal of being a successful president (as opposed to aiming to simply feather the nests of himself and his associates, even though we can sympathise with those who hold this view) then within this framework it would be somewhat self-defeating to severely harm the prospects of the green energy sector, one of the leading industries in the U.S.
Alongside this, Trump is an individual who understands power, and power projection – when analysed at a nation state level, the importance of energy sovereignty cannot be overstated. As such, once again, attacking the green energy industry would work against this.
In light of these dynamics, we think that while Trump will provide support for carbon-intensive industries, with an inevitable impact on the U.S.’s wider carbon footprint, we don’t think that this will necessarily be combined with an aggressive stance against the wider green energy industry. Indeed, this belief has potentially started to play out, with Trump announcing North Dakota Governor Doug Burgum as his pick for Secretary of the Interior; an individual who has been a champion of renewable energy in his home state.
So while time will tell just where the pendulum will swing in relation to green energy and the sustainable investment landscape, we are optimistic that the future for these areas in the U.S. are brighter than many might claim at this point.
Bitcoin and cryptocurrency
Another highly divergent area of policy that Trump ran on was his approach to bitcoin and cryptocurrencies more generally. Seeking support from the crypto voting base, Trump spoke at the annual bitcoin conference in Nashville, Tennessee, where he promised to make the U.S. the “crypto capital of the planet” and create a U.S. bitcoin ‘strategic reserve’ (for example, using the c.200,000 Bitcoin that the U.S. has seized from various entities over the years).
On election night as it became apparent that Trump was successfully putting distance between himself and Kamala Harris in the popular vote, the price of bitcoin rapidly increased in value and has continued, for now, to broadly appreciate in the subsequent weeks. From a pre-election price of near $70,000 per bitcoin, the price at the point of publishing this blog had increased to close to $95,000 per bitcoin.
We believe this is a trend that shouldn’t be ignored. Broadly speaking, the market is rapidly pricing in that a president has, for the first time, successfully won an election on a pro-bitcoin platform. As always with Trump, it’s impossible to know the extent to which he will follow through on his promises. Nonetheless, his pro-bitcoin stance was undeniably a clear part of his election promises, and so it seems likely that he will attempt to follow through on this. It goes without saying, that if a U.S. strategic bitcoin reserve is successfully created, then one would expect this to have a knock-on impact on the price of this asset.
As we have noted in previous pieces, we find bitcoin to be a very interesting asset and concept (a global digital currency that is censorship resistant, independent of any nation state or bank, and finite in supply – only 21 million bitcoins will ever exist). While it only has a c.15 year history, and typically speaking an evidence-based philosophy approach requires at least a 20 year history combined with academic analysis, bitcoin’s upward trend at this point is undeniable. While we don’t deem it to be an appropriate asset for our portfolios at this juncture, including due to its high volatility and notoriously aggressive ‘bear markets’ (for example the price fell from a peak of c.$69,000 in November 2021 to a bottom of around c.$15,500 in late 2022), we continue to research and keep a close eye on this asset.
Conclusion
There is no doubt that the election of Donald Trump for a second term is a significant development in the global landscape. With his supporters believing he truly will Make America Great Again, and his detractors believing he is the biggest threat to America in modern history, the likely outcome is somewhere in the middle.
As outlined in this blog, given the divergent policy stance from Trump in a range of areas, his second presidency has the scope to have a large impact on the U.S., both good and bad, and only the passage of time will reveal how this unfolds.
As we often repeat in our analysis, we don’t believe it’s possible to predict or successfully trade the outcome of highly complex global geopolitical events ahead of time, and investors are best served by remaining invested in line with their long-term investment strategy, at the appropriate level of risk, and letting political events and markets evolve naturally without trying to actively time or play these.
Nonetheless, what we do have in store is a very interesting four years ahead, and we’ll be sure to keep you up to date on key events as they play out.
For financial professionals only.
What else have we been talking about?
- Trump’s election win – the potential impact on policy, the economy, and markets
- October Market Review 2024
- Q3 Market Review 2024
- September Market Review 2024
- August Market Review 2024