The US has voted, and Republican nominee Donald Trump has been re-elected (with a 4-year gap) and becomes the nation’s 47^th president, defeating Democrat candidate Kamala Harris. Of course, with a Trump return to the White House comes a more unconventional governing style and a desire to implement more far-reaching policies (as compared to the status quo). The Republicans will likely control the House of Representatives [though final declarations are still outstanding as of publication] and winning back a Senate majority means passage and reform should be smoother for this Trump Administration compared to Trump I.

Indeed, with a new Republican Senate majority the Trump Administration will find greater ease in making executive appointments, such as the Secretary and Deputy Secretary. These roles oversee the daily running of government, and deliberate appointments will ensure that the implementation of the new executive is not hindered. With the Senate and (likely) the House of Representatives, this gives Republicans the ‘clean sweep’ – where both houses of the legislature plus the executive are Republican controlled.

If the Trump Administration wishes to pursue its agenda with full legislative force, they are now in a position to do so, and we would expect this to occur in the first two years of government and prior to mid-term elections in 2026.

With this in mind, we give a brief outline below of potential economic impacts under a Trump presidency.

Expansionary fiscal policy through spending and tax reform should facilitate growth, although many of the economic benefits from tax cuts would be at least partially offset through higher costs from tariffs and their associated tariff wars (potentially in retaliation). Further, Trump’s “America First” strategy for domestic production, protectionism for US industries and a less restrictive regulatory environment should also prompt domestic growth.

Tax cuts, tariffs on imports & heightened trade barriers would likely increase inflation. Decreased levels of permitted immigration could also be a concern if higher wages fuel inflation. In the first Trump administration, the Department of Immigration largely stopped processing visas and, in the process, sharply curtained immigration and labour supply. While legal immigration over the last couple of years has provided downwards pressure on wages, the return of Trump will see bond markets become even more watchful and vigilant in what is an already tight labour market.

In a more inflationary environment, US rates may be higher than under their current path. While Trump’s suggested policy actions and “jawboning” of the Federal Reserve may be unsettling for markets, we think sufficient checks and balances are in place to prevent significant governance disruption. Treasury and bond markets will continue to price to the conditions and outlook. As we saw in the UK Gilt meltdown in 2022, the market is the ‘piper’.

Volatile in the short term as tensions escalate and trade wars begin, but likely to appreciate (already being seen through the Trump trade) from tariffs and safe-haven flows into the US as tensions rise. Elevated interest rates would also place upwards pressure on the dollar. If fiscal spending through the net balance stimulates domestic growth, the USD would also gain as America pulls ahead of the global economy.

Tax cuts without spending reductions would increase deficits (Office of Management and Budget), and positive flows from economic growth wouldn’t be enough to offset these increases. So, an already-concerning US debt level would further burgeon with uncertainty on future debt serviceability remaining heightened.

Trump would revoke a US commitment to net zero by 2050 and withdraw from the Paris Climate Accords, and reduced spending on clean energy and other green initiatives would slow climate change action. The direct implication will depend on the revocation of various widely accepted programs, as well as Biden era programs such as the Inflation Reduction Act.

The economic growth outlook is positive under Trump with his policy to have a strong focus on domestic growth. We have held for some time now that bond markets look to have underestimated the neutral Fed Cash Rate. With this, we expect that the cash rate may not fall as much as expected and that 10-year bond rates may reach higher levels. The election of Trump and the likelihood of increased inflation has underscored and likely added to this risk. The possible outcomes and watchpoints for financial markets and strategy are:

• Positive earnings trends, particularly in the S&P493 – Trump policies are unashamedly ‘Make America Great Again’ and that naturally doesn’t include its trading partners in the first instance. Importantly, a pro-business/anti-regulation policy environment will make the US stand out relative to other western economies struggling to define and position themselves for growth.

• Pressure on risk asset valuation, particularly equities, if bond markets price a rise in the 10-year bond rate.

• Bond markets are extremely watchful of inflation targeting credentials & authority of the Federal Reserve (especially as the US is the world’s largest debtor). Budget management and deficit management will factor this into bond market assessments.

• The US dollar is likely to gain relative strength. Conversely, the AUD is likely to have downward pressure, with potentially downward trade implications.

• The low tariff era, largely championed by the US post World War 2 and culminating with China’s entry to the World Trade Organisation (WTO) in 2000, is likely now suspended or at an end (the Biden Administration itself had started increasing tariffs). Such significant change has domestic implications on production and prices, and the environment for world trade more broadly. It is a change markets will need to absorb.

• Geopolitical fracture and fission are increasingly important; against the backdrop of tariffs and other US policy actions, cyber risks and non-economic retaliation can be expected.

A very busy two years of policy change is ahead of us. Markets will need to ‘buckle up’. In the short run, a pro-business, lower tax and reduced regulation euphoria will likely propel risk assets higher.