With President Trump now officially back in the White House, we’re seeing some certainty now materialising as to the policy platform the administration is building and the direction of travel for the next four years. While a lot had been discussed during the campaign, the market has been grappling with how large the gap would be between rhetoric and action.
As is custom, the new administration will have ambitious goals to achieve tangible outcomes in its first 100 days, so the speed at which President Trump has been signing Executive Orders is unsurprising. As part of this initial burst activity, we have seen the US withdraw from the Paris Agreement and the World Health Organisation, the declaration of a national energy emergency, a rollback of electric vehicle targets, and a raft of measures relating to immigration.
Tariffs
What was notably absent from the first policy wave was any formal announcements on tariffs with President Trump opting instead to start dialogues with Mexico, Canada and China to address trade imbalances. This topic has spooked markets given the inflationary nature of higher prices.
It’s expected that a new tariff regime will differ significantly from the first Trump administration in 2017. For example, the inflationary impact for consumers back then was broadly offset by a combination of companies absorbing rising costs within their margins as well as the currencies of targeted countries weakening against the US dollar. This time round, the scale and breadth of the tariffs being discussed are so much greater that there will be little companies can do to protect their customers without materially eating into profitability.
While the administration’s opening gambit is to put 25 per cent tariffs on Canadian and Mexican and 10 per cent on Chinese goods imports, many expect this to be far from reality with cross-sectoral deals being struck in areas such as immigration, the illegal drug trade, and investment in order to avoid fresh trade barriers.
Inflation Reduction Act
One topic many clients have asked about and one that is often discussed in the market is around the implications for the Inflation Reduction Act (IRA). The IRA is one of President Biden’s flagship policies passed in 2022 with the stated intention of lowering prescription drug prices and investing in domestic energy production. Within this piece of legislation were provisions for loans and tax credits to spur fresh investment.
By Executive Order, President Trump has curtailed financial provisions for new loans made possible by the Act but has so far fallen short of being able to make any changes to the far more substantial tax credit provisions. This is in part due to the technicalities of the US tax code, and an inability to make complex changes (as would be needed) without new legislation.
Though Republicans have majorities in both the House of Representatives and the Senate, there is significant support amongst congressional Republicans for the IRA as the law has stimulated large amounts of investment in Republican states. This means there is an incentive for Republicans to deny President Trump to make meaningful changes that would jeopardise investment and jobs amongst their voters.
