Trump’s policy agenda: Where the rubber meets the road

November 15, 2024 | 8 min read

Christian Floro, CFA, CMT

Market Strategist

Trump returns, with majorities in Congress, but his agenda may face a bumpy road

Despite initial concerns that the outcome of the U.S. Presidential election might remain uncertain for days or even weeks, as dawn broke on November 6, it was apparent that Donald Trump will return to the White House as the 47th President of the United States. Surpassing his support levels from 2016 and 2020, not only did he win the electoral college, but he also won the popular vote. Notably, a GOP sweep also materialized, with the Republicans capturing a majority in both the Senate and the House.

As a candidate, Trump outlined an ambitious policy agenda focusing on trade tariffs, tightening immigration, expansive fiscal policy, deregulation, and a retooling of geopolitical structures.

The narrow Republican majority in the House suggests a challenging path for many of President-elect Trump’s initiatives requiring Congressional approval, particularly those concerning tax and spending measures. Nonetheless, with the risk of a contested election now resolved, U.S. markets have responded positively: the S&P 500 has reached new highs, and yields have risen on expectations of tax cuts and increased fiscal spending. However, policy proposals do not always translate into concrete action, making policy execution the critical focus in the coming months.

Congressional control post-election
Senate and House of Representatives

Source: Associated Press, Principal Asset Management. Data as of November 13, 2024.

Tariffs

With the underlying intention of bringing manufacturing capacity back to the U.S., President-elect Trump has outlined very stringent proposals including a 60% tariff on all Chinese imports, a 200% tariff on autos from Mexico, and a universal 10% to 20% tariff on all imports. The economic impact both on the domestic U.S. economy, as well as global trade partners, from such actions would likely be sizable.

Weaker U.S. growth: Various estimates suggest that, in the short-term, a blanket 10% tariff on imports alone could amount to a 1% drag on U.S. GDP.
Weaker global growth: While costly to the U.S. economy, the resulting global growth drag would be equally significant, with negative growth impacts ranging from a low of 0.6% of GDP for the EU, to as high as 3 to 4% of GDP for Canada and Mexico.
China’s challenges exacerbated: At a time when its economy is already challenged by the property downturn, China is highly vulnerable to an increase in tariffs given its reliance on exports as a source of growth. Local authorities would likely be forced to deliver even more aggressive stimulus measures to offset downside risks.
Inflation resurgence: Estimates suggest that tariffs could result in a 0.5%-1.0% increase in U.S. inflation in the near term, depending on the extent to which countries retaliate, and whether wholesalers or retailers opt to absorb some of the tariffs in their margins. Whether the increase in inflation is sustained, however, is likely to be determined by a variety of factors, including if higher inflation expectations remain anchored and how much the U.S. dollar appreciates.
Policy rate path slowdown: Upside inflation and inflation expectations risks may prompt the Federal Reserve to slow its rate-cutting pace. Already, markets are pricing in fewer rate-cuts in 2025 than prior to Trump’s victory.

Whether or not all proposed tariffs become a reality remains to be determined. While the President can exercise his authority on trade unilaterally, there are some limits. A blanket tariff may face legal challenges, creating significant delays versus other proposed measures.

Overall, a rise in tariff levels will likely accelerate the speed of deglobalization but could also lead to higher inflation in the U.S. and a weaker growth outlook for China and Europe, all while emphasizing U.S. exceptionalism.

U.S. trade balance by country
Rolling 12 months, visible trade, free alongside basis

Source: Clearnomics, Census Bureau, Principal Asset Management. Data as of July 31, 2024.

Immigration

Trump has proposed stricter immigration measures, including a full reversal of Biden Administration policies. His stated goal is to limit the flow of migrants, while reinstating the “remain in Mexico” policy in place during his first term in office. He has also suggested reforming the refugee and student visa renewals process, increasing border funding, and cracking down on so-called “sanctuary cities.”

Trump has also discussed the potential for mass deportations of illegal immigrants who are known criminals. While attention grabbing, these efforts are likely to be limited by funding requirements (one estimate from 2015 cited the cost of such efforts to be between $400 and $600 billion for a full-blown mass deportation) and noncompliance from blue states.

Nevertheless, the net effect of the proposed immigration policies will invariably lead to less migration overall, weighing on labor supply and the broader economy. For instance, lower labor supply could further increase inflation risk. And in the longer-term, as fewer people contribute to U.S. demand, these policies would also likely weigh on potential GDP.

Labor force participation rate
Foreign born and native born, non-seasonally adjusted, 2007–present

Source: Bureau of Labor Statistics, Principal Asset Management. Data as of November 1, 2024.

Taxes and spending

The 2017 Tax Cuts and Jobs Act (TCJA) expires in 2025, representing a de facto tax increase and a significant fiscal cliff risk for the U.S. economy. Extending the TCJA will likely be the most critical near-term legislative focus for the Trump administration. In addition, Trump also proposed expanding the state and local tax deduction, expanding the child tax credit, exempting tips from tax, and lowering the corporate rate to 15%.

While this expansionary fiscal agenda would likely be very positive for economic growth, in the short term, it would add to the risk of reigniting inflation.

Despite the GOP congressional majority, passing an expanded TCJA bill is likely to present significant challenges. Limited fiscal space—with the budget deficit at over 6% of GDP and interest payments a growing percentage of GDP—will be a key constraint. Indeed, bond vigilantes are likely gathering, alert to the risk of a further meaningful deterioration of the U.S. fiscal picture. The threat of elevated government borrowing crowding out private investment, with a potentially significant negative impact on economic growth, may work as a regulating force on Trump’s fiscal agenda.

The narrow House margin also creates risks that the GOP sweep may be in name only. More moderate Republicans in Congress have shown concern about the deficit impact of extending the TCJA, and they may not be inclined to support additional tax cuts, particularly on the corporate side.

Ultimately, markets should be prepared for an extension of individual tax cuts in the TCJA bill, but new and expanded tax cuts face a significantly higher hurdle. As a result, volatility and bond yields may remain elevated for some time, and if the latter is sustained, it could also be a headwind for equities.

Federal interest payments
USD billions and as % of GDP, actual values and Congressional Budget Office projections

Source: Clearnomics, U.S. OMB, CBO, Bureau of Economic Analysis, Principal Asset Management. Data as of November 15, 2024.

Regulation

Markets have already seemingly front run the pro-growth impact of Trump’s deregulatory push, with cyclical sectors like Financials, Industrials, and Energy all outperforming within the S&P since November 5 amid expectations for increased M&A and investment activity, and a revival of corporate sentiment.

However, the focus for investors should be around implementation of Trump’s de-regulation policies, and personnel will be key. This time, the incoming administration appears better positioned with a full slate of strategic appointments for key political posts, making regulatory changes smoother and quicker. Additionally, the Republican majority in the Senate is expected to swiftly approve most political appointees.

Geopolitics

With two current conflicts underway, President-elect Trump’s stance on providing support to Ukraine and Israel may be a key policy difference from the outgoing Biden administration.

Trump could be less supportive of providing further funding for the war in Ukraine. Furthermore, the substantial increase in U.S. military spending in recent years, coupled with the mounting fiscal deficit, has made some in Congress question its support for Ukraine and the U.S.’ contributions to NATO without most European members paying their required shares. For Europe, the threat of fighting Russia without the military and financial strength of the U.S., and paying their required NATO dues, would likely force the region to boost its own defense capabilities, involving increased fiscal funding that it can ill afford.

From Trump’s campaign rhetoric about the conflicts that Israel is currently fighting, he has vowed to bring peace to the region – but exactly how he will set out to do that, and how much he will support Israel’s ongoing offensive against Hamas & Hezbollah remains to be seen. While bipartisan support for funding aid to Israel is unlikely to dissipate, the Trump administration will need to balance its stated desire to have a firmer hand on Iran, potentially increasing the risk of oil supply disruptions, as his Administration may press for the reimplementation of oil sanctions on Tehran.

While it remains to be seen how Trump’s foreign policy positions tangibly evolve, it’s worth remembering that aside from developments that trigger inflationary concerns, geopolitics rarely have a sustained impact on markets.

World top 10 oil producers
Calendar year 2023

Source: AEIA, Principal Asset Management. Data as of November 15, 2024.

Conclusion

While President-elect Trump's ability to advance his key policies faces substantial challenges, three critical factors emerge from the U.S. election results. On taxes and spending, the narrow Republican House majority and concerns over fiscal sustainability will likely act as constraints, with market pressures potentially intensifying if fiscal stimulus is seen as excessive. On tariffs, there remains a risk of slower growth and renewed inflationary pressures, which may limit the Fed’s scope for further rate cuts in 2025. However, with a soft landing as the base case, U.S. resilience suggests that the economy is better positioned to handle these potential shocks compared to the rest of the world.

Although policy uncertainty may persist into 2025, it is expected to gradually subside as Trump’s administration clarifies its policy agenda. Inflation will be a crucial variable to monitor, yet with a pro-growth policy bias in play and a solid U.S. economic foundation, despite potentially heightened and sustained market volatility, there is a strong outlook for risk assets in the quarters ahead.

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"These Terms & Conditions explain certain legal and regulatory conditions and restrictions in relation to the Principal Global Investors (Europe) Limited website, and in relation to the Principal Global Investors Funds (‘the Funds’). This information may be changed by Principal Global Investors at any time without notice.

In these terms and conditions, references to 'Principal Global Investors' means Principal Global Investors (Europe) Limited or any affiliate of the Principal Financial Group, Inc. or Principal Global Investors, LLC.

Before you proceed, you must acknowledge that you have read, and agree to, our terms and conditions.

Information in relation to the Principal Global Investors Funds is available through this web site to institutional investors resident in the following countries of: Belgium, France, Finland, Germany, Guernsey, Ireland, Italy, Jersey, Netherlands, Spain, Sweden, Switzerland and the United Kingdom. By proceeding this far you are representing and warranting that you are an institutional investor resident in one of these countries. Not all of the Funds are available in all these jurisdictions, and investors are directed to the Country Registration document for detailed information. What follows is not an offer or invitation to acquire an investment to, and should therefore not be relied upon by, any person anywhere other than the countries noted. Persons in respect of whom such prohibitions apply must not access this web site. This web site is reserved exclusively for non-U.S. persons and should not be accessed by any person in the United States.

Yes, I certify to be an institutional investor and resident of a country listed above.

Cookies
Use of cookies on this site is outlined in the Privacy and Security Policy. In accepting these terms and conditions, you accept the terms of the Cookie Policy and the use of cookies from this site.

Legal Entity Disclosure and Regulation
In Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland.

In the United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorised and regulated by the Financial Conduct Authority (“FCA”).

In Switzerland by Principal Global Investors (Switzerland) GmbH. This website is considered as advertising and information contained herewith be treated as such. Investors can obtain free of charge the prospectus, trust deed, the prospectus, the key investor information document (KIID), and the annual and semi-annual reports from the representative in Switzerland.

In Europe and United Kingdom, this website is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID and FCA respectively). If you are viewing the material as a retail investor, you should seek independent investment advice before deciding whether the products and services in question are suitable to meet your investment needs and objectives, as the language has not been complied to a retail client standard.

Principal Global Investors Funds
Principal Global Investors (Ireland) Limited is the issuer of the Funds. Investments may only be made on an application form attached to a current prospectus and following receipt by the investor of the KIID in respect of the Fund in which they intend to invest. The latest version of the prospectus of the Funds is dated 14 December 2012.

For Real estate investors in the European Economic Area (“EEA”), this website and the information on it is only directed at persons who are professional investors for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”), professional clients or eligible counterparties for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (“MiFID II”) or as otherwise defined under applicable local law and regulation and at whom this website and the information on it may lawfully be directed in any relevant jurisdiction (“Eligible Persons”). In relation to each member state of the EEA (“Member State”) which has implemented AIFMD (and for which transitional arrangements are not/ no longer available), this website may only be accessed and interests in Funds may only be offered or placed in a Member State to the extent that: (i) the relevant Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD (as implemented into the local law/regulation of the relevant Member State); or (ii) this website and its information may otherwise be lawfully distributed and the interests in Funds may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). In relation to each Member State of the EEA which, at the date of accessing this website, has not implemented AIFMD, this information may only be distributed and interests in Funds may only be offered or placed to the extent that this information may be lawfully distributed and the interests in Funds may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Persons who are not Eligible Persons, including but not limited to those individuals or other persons who fall within the FCA’s definition of ‘retail clients’, should not use or rely upon this website or the information contained therein and may not engage the services of Principal Real Estate or any of its affiliates, or invest in any Fund. Potential investors are advised that all or most of the protections provided by the UK regulatory system will not apply and that the UK Financial Services Compensation Scheme may not be available in relation to an investment in a Fund or separate account.

The contents of this website have not been verified or approved by any competent regulatory or supervisory authority. No liability, whether in negligence or otherwise, arising directly or indirectly from the use of the information or any part of it on this website is accepted and no representation, warranty or undertaking, whether express or implied, is or will be made at any time by Principal Real Estate or its affiliates or any of their respective advisers, directors, officers, employees, representatives or other agents (“Principal Agents”) for any information or any of the opinions contained herein or for any errors, omissions or misstatements.

None of Principal Real Estate or its affiliates or any Principal Agents makes or has been authorised to make any representation or warranties, whether express or implied, in relation to Principal Real Estate or regarding the truth, accuracy or completeness of any of the information contained on this website at any time. No representation or warranty is given by Principal Real Estate, its affiliates or the Principal Agents as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in the information on this website. Furthermore, nothing contained on this website is or should be relied on as a promise or representation as to the future. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained on this website or on its completeness, accuracy or fairness at any time.

Principal Global Investors (Europe) Limited is not authorised by the FCA to directly deal with retail investors; any distribution of the Fund to retail investors in Europe is facilitated by fund distributors with which Principal Global Investors (Europe) Limited has entered distribution arrangements, pursuant to advice provided to investors by those distributors, based on the documents Principal Global Investors (Europe) Limited provides. Retail investors should not be provided with access to this website.

The name of the Swiss representative is ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zürich. The name of the Swiss paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. Investors can obtain the prospectus, trust deed, the simplified prospectuses and the annual and semi-annual reports free of charge from the representative in Switzerland.
The value of units and the income from them may fall as well as rise.

Investments in the Funds are neither insured nor guaranteed by the US Government or the Federal Deposit Insurance Corporation and are not deposits or obligations of, or guaranteed by, Principal Global Investors.

No Solicitation
Nothing contained in this website shall constitute an offer or solicitation, in relation to units in the Funds or generally, in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

In particular, shares issued by the Company, and units in the Funds, have not been and will not be registered under the United States Securities Act of 1933 as amended or the securities laws of any state or political subdivision of the United States and may not, except in a transaction which does not violate US securities laws, be directly offered or sold in the United States or to any US Person. The Company will not be registered under the United States Investment Company Act of 1940 as amended.

This website is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

No Investment Advice
The information in this website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision.

You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to any investment, including the subscription, holding, transfer or disposal of units in the Funds

Delegation of Investment Management to Affiliates

Products upon which composite results contained in this material, if any, are based may not themselves be available in the United Kingdom and certain other jurisdictions; however, the underlying investment management capability can be made available to institutional investors subject to all applicable local regulations and restrictions. In connection with its management of client portfolios, PGIE may delegate management authority to affiliates that are not authorised and regulated by the Financial Conduct Authority. In any such case, the client may not benefit from all protections afforded by rules and regulations enacted under the Financial Services and Markets Act 2000.

Disclaimer
The information on this website is given by Principal Global Investors in good faith and has been derived from sources believed to be reliable and accurate as at their date. However, Principal Global Investors makes no representation or warranty of any kind for the accuracy or completeness of the information and it is under no obligation to update or correct any errors in the information after the date of publication. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

Subject to applicable law, Principal Global Investors and its affiliates and their respective directors, employees and associates do not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, the information and do not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access the website.

The Internet is not a totally reliable and secure medium of communication. Principal Global Investors accepts no liability for the security or confidentiality of information transmitted in this way and any such transmission of information shall be at your own risk.

The entire content of this website is subject to copyright with all rights reserved. You may not copy, reproduce, distribute or modify the content of this website without the prior written permission of Principal Global Investors.

No instructions for investment purposes will be accepted directly from this website or by e-mail.

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You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly, persons are required to inform themselves of and observe any such restrictions.

The information in this website is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE or elsewhere in the Middle East.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Investor Management (DIFC) Limited and the other member firms of Principal (collectively, the “Firms”) do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client’s investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor’s investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Nothing in this website should be construed as investment, tax, legal or other advice.

The content of this website has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

Access to this website is only permitted for “Professional Clients” as defined in the Conduct of Business of the Dubai Financial Services Authority’s Rulebook. If you are not a “Professional Client”, you may not access this website and you should select the “Decline” link below.

By selecting the “Accept” button below, and entering this website, you agree to these terms and confirm and represent that you are a “Professional Client”.