The Trump Effect on the Economy of the United States of America
On Monday 20th January 2025 ex-President Donald Trump will once again become President of the United States of America and a new era of Trump economics will begin. There are many differing opinions on what may happen to the American economy, but one thing seems certain: tariffs on imports to the United States are back, with China seemingly getting the brunt of this policy. Many commentators are at odds with each other as to what may happen in the short, medium and the long-term of a Trump2 presidency, so what policies will really impact the economy of the United States?
Tariffs
Many analysts and economists have said that the tariffs threatened by Donald Trump (10 – 20% on all imports apart from China which is 60%) will have the biggest impact on the US economy. In his first term, the Trump administration placed taxes and duties on imports of circa USD380 Billion, and his second administration is expected to increase tariffs even more under the “America First” policy. What is also important is that, as was seen from his first administration, the President can enact tariffs all by himself without the approval of congress.*
*Tariff Approval – The approval of tariffs was once in the hands of congress who had the constitutional right and would require legislative action. However, many years ago, congress gave up its rights to set tariffs and today a range of laws now authorise the President when certain conditions are met to impose tariffs. Under the International Emergency Economic Powers Act of 1977, the President can invoke emergency powers to impose tariffs without having them approved by congress.
The President elect has already said that tariffs or import taxes will reduce the trade deficit of the United States, whilst at the same time raise revenue and re-shore manufacturing. Some experts predict that the President elect will implement tariffs with alacrity, however, analysts predict that as a result of import duties/tariffs, inflation will rise because the higher costs now being experienced by importers will be passed on to consumers. Janet Yellen, the United States Treasury Secretary in December 2024 has been quoted as saying that the President elect’s plans to levy broad import tariffs could derail progress in quelling inflation and raise costs for businesses and households. The Treasury Secretary went on to say that Donald Trump’s tariff plans of 60% on Chinese imports and 10% – 20% on imports from elsewhere would “raise prices significantly for American consumers and create cost pressures on companies”.
Such concerns have been dismissed by the President elect and his cohorts as downbeat projections from senior figures on Wall Street. They pointed out that until Covid-19 and the pandemic hit, the President in his first term presided over robust growth, this despite tariffs which also did not cause inflation to spike. Indeed, the CPA* (Coalition for a Prosperous America) estimated that with the promised income tax cuts combined with a universal tariff of 10% would create circa 2.8 million jobs and would add circa USD700 Billion to economic output.
*CPA – This is the only national non-profit organisation that exclusively represents domestic producers across the United States. They are a coalition of manufacturers, workers, farmers, and ranchers, and represent the interest of 4.1 million households. Their team includes decades of government experience in congress, the executive branch, and the private sector.
Deregulation
Historically, businesses favour deregulation and are more likely to invest under a political administration that favours such an option. Indeed, Donald Trump’s goal of removing ten regulatory rules for every new one issued will create, according to some experts, hyper deregulation, which will make a positive impact on economic growth. Analysts point to the 1990’s, where a comparative study between the United States and Europe showed that stricter regulation in Europe, and especially during a period of rapid technological information, resulted in the United States having faster growth than Europe. This particular study showed that tighter regulation deterred investment whilst a more liberal attitude towards regulation boosted investment.
The Trump2 administration will be able to reduce quickly and efficiently what is known as “Extra Regulatory Guidance” as it does not require approval from congress. However, the removal of whole government departments and agencies would take a serious amount of time and the newly formed DOGE (Department of Governmental Efficiency)is not expected to issue their recommendations until mid 2026. Experts suggest that the prospects of deregulation will more than likely encourage a “risk on” environment in the United States, which could be especially beneficial to cryptocurrencies and financial stocks.
Tax Cuts
Analysts suggest that a Trump2 administration will probably focus on his first administration’s TCJA (Tax cuts and Jobs Act) with a view to expanding and extending this act. The reason for extending the act is that if it was allowed to expire it may well encourage a fiscal drag on US growth, so it is assumed this will have a positive impact on the economy. Corporate profits are also on the Trump2 radar with plans to cut the top rate of tax from 21% to 15%. Experts have suggested that this will be more difficult to achieve because of the current federal deficit, the pressure to raise spending on defence and other areas plus the effect extending the TCJA, which has a direct effect on voting households’ budgets.
However, economists warn that what impact that tax cuts will have on the federal deficit as the original TCJA was not fully funded (the loss of tax revenue was not offset by other tax revenues or spending cuts). Team Trump2 however, argue that deregulation and lower taxes will eventually pay for the tax cuts (albeit indirectly) as they will ignite investment, productivity, and economic growth.
Immigration
It appears that President elect Donald Trump has two planks to his immigration policy, 1. Deporting undocumented individuals already residing in the United States and 2. Basically closing and securing the southern border of the United States.
The incoming administration has threatened to deport between 15 and 20 million people within the United States who have no proper documentation. Experts in this area report that near-term actions will focus on the circa 1.4 million individuals that have been ordered by the courts to leave the United States. There are also a backlog of court cases accounting for circa 3.7 million individuals which will be which the new administration will hope to pass through the courts as quickly as possible.
Many commentators agree that mass deportations could have a negative effect on the economy and inflation, with adverse effects on the service sector (experiencing acute labour shortages) and the agriculture sector where an increase in pricing could be the result of deportations. Doomsdayers suggest that such a policy could lead to stagflation, higher inflation and even a recession with a slowdown in the economy and higher wage costs. However, such speculation is dismissed by the incoming administration who feel by putting America First will allow the USA to be economically and socially on the up.
During the Trump1 administration, securing and closing the border between Mexico and the United States was not completed, and in the Trump2 administration the President elect will be leaning on the President of Mexico to help stop illegal crossings into America. President elect Trump has already made his feelings and intentions towards Mexico exceptionally clear. Indeed, on the very last day of campaigning the then ex-President Trump advised his supporters that the Mexican President would be the receiver of one of his first telephone calls. He said he would advise President Claudia Sheinbaum that if she did not stop the onslaught of drugs, criminals and other illegals coming into the United States, he would impose an immediate tariff of 25% on everything coming out of Mexico bound for the USA. However, a number of economists have advised that closing the border will have little impact on the economy of the United States.
Final thoughts
It is difficult to predict the future, but one thing is certain: President elect Donald Trump, with his “America First” policies, will use tariffs as a weapon to try and get his own way. Furthermore, experts suggest his policies will have a dramatic effect on the regulatory and economic landscape of the United States. Elsewhere, sustainable investment (not on the list of Trump2 priorities) emerging markets and other sectors will all feel the effect of the new administration’s policies, with broader implications for environmental risks, new challenges to global trade dynamics and increased market volatility.
