Trump’s win creates a whirlwind of new winners and losers

Donald Trump has done it again. Just as betting markets predicted, he won Tuesday’s US presidential election.
While analysts pour over exit polls and surveys to understand why, one economic truth stands out. Voters everywhere are fed up with high inflation, and they punish incumbents for it.
Americans, in particular, faced their sharpest inflation since the early 1980s. They weren’t fooled by the Democrats’ convenient narrative that the 20 per cent spike in prices was merely the result of supply shocks and corporate greed, rather than excessive macroeconomic stimulus.
How much inflation truly cost the Democrats the presidency is up for debate. What is undeniable, however, is that markets reacted sharply to Trump’s victory. By mid-morning Wednesday, the dollar index surged by 1.7 per cent, signaling — alongside rising Treasury yields — expectations of larger budget deficits that will drive up interest rates.
Stock futures soared to record highs, and bitcoin by more than 7 per cent, buoyed by Trump’s promise of a lighter regulatory hand on cryptocurrencies. We should all brace for substantial volatility in the coming months. Trump’s win brings a whirlwind of policy uncertainty that will not only stir macroeconomic turbulence but also carve out new business winners and losers.
• Trump policies: what will he do as president?
The most glaring source of that uncertainty is trade policy. Trump’s campaign proposed a staggering 60 per cent minimum tariff on all Chinese goods and a global tariff of up to 20 per cent on other imports. Full implementation would severely disrupt global trade flows, but whether that occurs is anyone’s guess.
Will these tariffs apply indiscriminately, tearing apart existing US free trade agreements? Does the executive branch even have the legal authority to impose such sweeping import taxes? And will Trump genuinely go through with substantial price hikes on everything from electronics to coffee?
While he frequently touts tariffs to protect US industries, his team still insists that these are just bargaining chips meant to push other countries to abandon their own protectionist measures.
The idea that Trump is still playing 4D chess to secure free trade is utterly ridiculous. My Cato colleagues Scott Lincicome and Clark Packard have also concluded that there are enough potential loopholes in US law that Trump could well attempt implement this broad agenda, albeit with inevitable legal challenge.
Manufacturers reliant on imported components and exporters bracing for retaliatory tariffs from foreign countries are thus already hitting the brakes on major investments, including expansion plans.
Retailers, too, are stockpiling popular items in anticipation of price hikes once tariffs are in place. These costly decisions, born of uncertainty, will only serve to stifle economic growth.
But tariffs are just the beginning. Trump’s presidency ushers in significant fiscal uncertainty around US budget deficits and, by extension, interest rates.
Next year, nearly all of Trump’s personal tax cuts from his 2017 legislation are set to expire, priming Congress for a major tax showdown. His campaign not only aims to extend these cuts but also proposes sweeping new tax reductions, including eliminating income taxes on tips, overtime pay and Social Security benefits.
The Committee for a Responsible Federal Budget warns that if all of Trump’s tax and spending plans come to fruition, the federal deficit could swell by nearly $800 billion annually, piling onto an already staggering $2 trillion shortfall, which amounts to 6.7 per cent of GDP.
Congress may ultimately hold the reins on fiscal matters, but a Republican sweep means there will be little restraint on conservative tax-cutting ambitions. As for spending cuts? Despite flirting with the idea of letting Elon Musk root out government inefficiencies, Trump has never demonstrated any real appetite for slashing the state or tackling the deficit.
‘The self-styled “King of Debt” oversaw an increase in borrowing even before the pandemic hit. History shows that unified government typically accelerates spending growth. As a result, borrowing is likely to rise further, though how far is unclear, pushing the country closer to fiscal crisis.
It might sound surprising to say it but climate policy represents yet another area of major uncertainty under Trump. His intention to withdraw the United States from the Paris agreement and expand fossil fuel production is widely anticipated, even if other countries regret it. What’s less clear is if he will reverse Joe Biden’s inflation reduction act and its extensive subsidies for green technologies.
Trump has hinted at rescinding unspent funds and could use administrative power to dilute the law through “guidance”. Yet a letter from 18 House Republicans to the House Speaker this summer indicates strong political pressure to preserve business energy tax credits benefiting projects in Republican districts. Coupled with Trump’s protectionist desire to reshore manufacturing industries from China, we might witness a more nuanced approach to green industrial policy than anticipated.
Beyond these uncertainties, there are aspects of a Trump victory that businesses will surely welcome and actually reduce uncertainty. His previous corporate tax cuts and generous expensing policies are now secure, and the corporate tax rate could even be reduced further to a flat 15 per cent, offering strong incentives for investment.
Companies can also anticipate pro-business judicial appointments, and the likely removal of Lina Khan as chair of the Federal Trade Commission will surely mean fewer mergers and innovative business practices facing spurious legal challenges.
More importantly, if Trump’s first term taught us anything it’s that he will halt the onslaught of new regulations affecting major products and labour markets, barring immigration laws. This more stable regulatory environment will enable businesses, at least those not targeted by his social media rants, to concentrate on product development and investment, rather than wrestling with compliance costs or scrambling to adapt operations to regulators’ whims.
One thing is indisputable, though: Trump’s victory shakes up economic policy, and with that comes fresh uncertainties. It will take some time before the full consequences become clear for financial markets and corporations.