There are very different views about the desirability and consequences of the electoral victory of Donald Trump and the wider Republican Party in the recent US elections. There is, however, general agreement that it will represent a decisive change in the conduct of US policy and its impact on the world.
President Trump’s first term in office saw him implement tax cuts, take the US out of the Paris climate change treaty, toughen the trade stance against China and avoid new wars. It ended with the Covid-19 lockdowns, the rows between Democrat and Republican states on how to respond to the virus, and with plenty of dissension between the President and some of his advisers who he had fallen out with along the way.
This time, President Trump seems to be putting past loyalty and buy-in to his views higher up the list of requirements for cabinet members.
During the election. Mr Trump was crystal clear about what he wants to do, knowing that his most eye-catching proposals are the ones that most worry or annoy his opponents.
His priorities, he tells us, are:
- To deport more illegal migrants and seal the Mexican frontier.
- Increase oil and gas production whilst writing net zero out of the script.
- Bring peace to Ukraine.
- Impose tariffs on the world.
- Slash the costs of government.
- Stop the federal administration doing things.
- Cut back on regulations.
The surprise might be that is exactly what he sets out to do. Where some politicians say one thing to get elected then moderate, compromise or blend with the establishment once in office, this is unlikely to be the case with President Trump. He may be an older man in a hurry to be different and to do what he failed to do last time.
The choice of cabinet
We now know the names of the 15 heads of government departments who he wants to sit alongside him and the vice president around the cabinet table. They are a mixture of people qualified and experienced in their chosen areas and mavericks who are out to challenge inherited thinking.
Mr Trump has agreed that his most provocative nominee, Matt Gaetz, should be replaced by Pam Bondi as Attorney General. He does not want a series of bruising rows with some Republicans in the Senate who need to approve these choices.
His choices for office
The president’s chosen ones still include contentious figures who will wish to slim down, abolish or mightily change the parts of government he wants them to run. Robert Kennedy at health is hostile to some vaccines and believes in alternative treatments and therapies. This will put him at odds with much of the medical establishment and large pharmaceutical companies.
He will be reinforced by the views of Dr Mehmet Oz at Medicaid who, as a TV doctor recommended homeopathy and alternative medicines. The pair are meant to “make America healthy again”, joining with the president in disliking opioid dependence and other features of chemical medicines. Mr Trump calls them the “illness industrial complex”.
Chris Wright at Energy is keen on fossil fuels and fracking. Doug Burgum at the Department of the Interior will want to drill on federal lands. We should expect a determined expansion of fossil fuel output.
Elon Musk is currently a court favourite.
Marc Rubio as Secretary of State will be friendly to Israel and sceptical about US commitment to the Ukraine war. Tulsi Gabbard, a former Democrat, will raise some eyebrows for her views on the origins of various conflicts and the role of Russia and is pencilled in for Director of National Intelligence.
We should assume most of his appointees will be passed by the Senate, but they may make it difficult where there is more press controversy – and the individual is very public in their criticisms of the professions that stand behind the part of the government machine they are nominated to manage.
In many cases, the president has clearly chosen them for their challenging views, because they point in the direction he wishes to travel. The problem is that people with that much independence of mind may not always be the best collective players, however loyal they have been in the run up to the election.
The president has to woo some wayward Republican Senators not to block his wishes. If nominated, the individuals will encounter institutional resistance to their more radical ideas.
Elon Musk is currently a court favourite. He is being made an adviser on government waste and on deregulation. He will need to move carefully given his business interests which he seems to want to retain. He presumably is not proposed for a cabinet or management job for that reason of possible conflicts.
Give up on net zero
We should be ready for an early US exit from the Paris Treaty and for a government that does not regard reducing carbon-dioxide emissions as an aim. The new team are likely to continue with existing projects to install more renewables and may continue with some of the policies to promote such investment, but the emphasis of policy will shift to more fossil fuels from home sources. There may well be cut back in future green subsidies.
President Biden has already put in a Trump type policy with a100% tariff on Chinese electric cars, saying that domestic car manufacture matters more than getting more people to buy and drive battery vehicles – purchased at cheaper Chinese prices.
Whilst Elon Musk would presumably be in favour of policies that urge people to buy more battery cars, the president-elect has repeated his wish to cut the subsidies to electric cars.
The US achieved a 50% increase in its oil output under President Trump in his first term and the country can produce more. This will generate tax revenue for the state, remove any question of import dependence, and mean the US does not have to worry so much about the Middle East and its large oilfields. Cheap energy is crucial to industrial revival, and cheap energy is important to US consumers who objected strongly to the surge in gasoline prices under President Biden.
Stop the inflow of migrants
Illegal migration was under better control during the first Trump term. He was building a border wall with Mexico, adding to the wall installed by his Democrat predecessor. This time there will be more wall and fence, but there will also be accelerated deportations, to act as a deterrent to anyone thinking of coming illegally. He is reportedly considering finding a country or two that would take these individuals and wishes to restore processing asylum claims before people are allowed into the US.
Slim the bureaucracy
Presidents have an advantage coming into office, as some of the previous incumbent’s officials leave as they were working for a specific president or party. It means Mr Trump can not only swap Republicans for Democrats as usual but could also remove senior posts if he wishes.
Trump and his lieutenants would then need to reorganise the permanent staff who are staying and maybe run numbers off through natural wastage and reorganisation. He has said he will abolish the Education Department altogether, leaving this to schools and individual states to run. It may end up as a big slim down.
He and Elon Musk will find scything through regulations more difficult, as it requires plenty of research and knowledge of the detail and may well need legislative change from Congress. Whilst the people at the top may well think much of the current regulation is useless or harmful, the political and corporate establishment will fight to keep much of it as they are geared to apply it, see it as a way of limiting competition or have good reasons to say it is necessary. Deregulation can easily be presented as bad bosses who do not care about safety, employment rights or whatever is the base of the particular rule.
Tariffs with everything
When Donald Trump dreams of the “beauty” of tariffs he probably has in mind the facts that they bring in revenue without tax rises, they help direct jobs and investment to the US from abroad and they give him leverage over other countries when negotiating or trying to influence their conduct. Some of the tariff threats are to achieve other aims, which means he does not want the tariffs. In the case of Mexico, they will get higher tariffs unless they help him shut the border.
The president-elect has speculated on replacing income tax with tariff revenue. He will, of course, need to see that tariffs may not be a tax on foreigners supplying goods but may be a tax on US consumers buying them, depending on foreign ability and willingness to absorb some of their cost.
He will be conscious that raising prices in the US by cutting out cheap supply could boost the very inflation which helped him win. Tariffs will go up under Trump, and they will encourage more production in the US and some policy changes elsewhere. They will tend to lower world output, as US consumers or foreign companies pay more to supply what people need and can afford.
Lower taxes will help equity markets
President-elect Trump will expect Congress to roll over his tax cuts from the first term which otherwise expire next year. He wants to add a further cut to corporation tax to 15% for onshoring industrial activity. Lower company tax rates, all other things being equal, mean higher equity valuations as more revenue reaches the shareholder earnings line. He plans to abolish income tax on tips and will be looking to lower personal taxes further.
Foreign policy
Middle East policy is likely to resume around the alliances and Treaties he was building when last in office to isolate Iran and bring the United Arab Emirates, Egypt, Saudi and others closer to Israel. This is now very difficult, as his former allies are shocked by the state of Gaza. He will want Israel to be seen to have won against the proxies of Iran but will probably want an early end to hostilities.
In Ukraine, he clearly wants an early end to the war and has said he will pressurise both sides into talks and into compromises. He will expect European allies to go further and faster in his quest to make them pay for their own defence within NATO – and will want them to take more of the strain of Ukraine.
Trump will stand up to China, impose higher tariffs on its goods and work hard to reduce US dependence on the country’s exports.
Direction of economic policy
His choice for Treasury Secretary, Scott Bessent, sings from the Trump songbook. He will want to see the economy growing faster, with profitable and expanding businesses. Scott Bessent sums up his approach as three-three-three:
- GDP growth of 3%.
- A 3% deficit after the spending cuts.
- An extra 3 million barrels of oil pumped every day.
He makes a more moderate case for tariffs than Mr Trump.
President Trump sees stock exchange indices as a commentary on his success. He is not too worried about large budget deficits, though will be talking about reining in spending as his preferred way of cutting the borrowing.
Conclusions
Markets generally think President Trump is better for equities than for bonds, being expansion minded. Whilst there are worries about tariff wars, overall markets have taken the election into account without undue worries.
Market participants know quite a bit about what to expect, having lived through the first term and seen plenty of comment on what the President elect wishes to do. The medical sector is apprehensive where unpredictable change may lie ahead, depending on confirmation of the appointments. The fossil-fuel sector is a winner, technology will get plenty of on shoring support and corporate America will enjoy low energy costs and low taxes by advanced country standards.
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