Trump is back — and the wild stuff has already started

Well, the future is definitely orange. Whether it’s bright is a far trickier question, with the second coming of Donald Trump potentially even more contradictory than the first.
Look at the knee-jerk reaction: a heady return of the “Trump trade”, a hotch-potch of investment strategies that, like the president-elect’s policies, don’t really add up to anything coherent. Up went share prices to new records on expectations of tax cuts and “drain the swamp” deregulation. Up, too, went the dollar. First, because The Donald’s blueprint for office — also including tariffs, trade wars and cuts to immigration — are almost certainly inflationary, meaning interest rates are likely to stay higher for longer. And second, because whatever he does, the greenback is still the world’s reserve currency.
And up, too, went bond yields on calculations that, alongside all that, a property developer president, with a liking for leverage, is not the sort of fellow to put the brakes on US public spending. Indeed, as economists from Dutch bank ING noted: “The bipartisan Committee for a Responsible Federal Budget estimates that Trump’s mix of tax cuts, tariff hikes and spending changes will add $7.75 trillion to the national debt” over ten years versus where it might have been without him.
Lob in a record bitcoin price, on a Trump promise of crypto nirvana, and quite a bit of wild stuff is already going on — even before he takes office and reminds everyone what an erratic, capricious, impulsive leader he can be. Last time round provides some sort of guide. But that ended with Covid: an ideal forum for his recommendations on injecting disinfectant to ward off the disease but not for his economic policy.
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He’d started out boasting: “I’ll be the greatest jobs president that God ever created” — before being booted out of office as the first since Henry Hoover to oversee a fall in job numbers. Yet, before 2020’s recession, his presidency had continued the longest expansion on record for the US economy, with unemployment dropping from 4.7 per cent to 3.5 per cent. He’d also cut corporation tax from 35 per cent to 21 per cent and presided over a bull run for US stocks, modestly saying: “The reason our stock market is so successful is because of me”. Nothing to do with near-zero interest rates, then.
This time, he’s made some big claims for domestic policy. He told Fox News he’d cut corporation tax to 15 per cent but in a protectionist US-first sort of way — “solely for companies that make their product in America”. He’s threatened to deport 11 million “illegal” immigrants, which could put labour costs up if it actually happened. And he’s threatened to stop offshore wind on “day one”, because “they kill the birds, they kill the whales”, and cut subsidies under Joe Biden’s $369 billion Inflation Reduction Act (IRA) in favour of “drill baby drill”.
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Such short-termist efforts to lower US energy costs might offset the inflationary impact of other policies. Yet, Trump didn’t stop the green energy transition last time. And, as the Energy and Climate Intelligence Unit noted, doing that would harm “the very people who voted for him”. It reckons “85 per cent of investments” under the IRA and “two-thirds” of the resulting jobs have been in Republican-voting parts of the US.
Globally, the big Trump threat is to world trade. He’s called “tariff” the “most beautiful word in the dictionary”, claiming he’ll levy “60 per cent” duties on imports from China and at least “10 per cent” on those from everywhere else: the reason shares in shipping companies and German car makers fell. Yet, on past form, some of this may be a negotiating position, his famed “art of the deal”. And there’s a risk tit-for-tat trade wars backfire, driving up costs for US consumers.
Some analysts think he lost his last trade affray with China, starting in 2018 with tariffs on washing machines and solar panels and extended to the delights of live eels, bovine semen and badger hair. The Chinese retaliated with duties of up to 25 per cent on more than 100 US products, including soybeans and aircraft. Moody’s Analytics calculated in 2019 that Trump’s Sino set-to cost the US economy 300,000 jobs. Even the incoming president has only so many trump cards.
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Just what the world needed: an even more insufferable Elon Musk. The Tesla chief’s big bet on Trump has already paid off big time: a reported $130 million outlay backing the election winner, complete with $1 million cheques to bribe the voters, brought an instant boost of about $15 billion to his fortune.
Musk owns 411 million shares — a stake of 12.8 per cent — in the electric car maker, whose stock price raced 14 per cent higher. Not bad for starters, given the man Trump described as a “super genius” has six companies, most embroiled in some way with the US government — SpaceX, say, which is already a partner to Nasa, and Tesla, too, whose push into self-drive cars may need regulatory help from a friendly administration.
Trump hinted that Musk may also be his cost-cutting guru: a reference he played up to with a picture of his Twitter sink. Good luck with that. His efforts at the social media site, now known as X, have taken two-thirds off the company’s value.
A big test looms for the US Fed, which analysts believe is still limbering up for a rates cut this week. Having accused its chairman Jerome Powell of being “a little bit too early and little bit too late” on policy decisions, Trump said last month: “I think I have the right to say I think you should go up or down a little bit”, even if he wouldn’t be “allowed to order it”. Try squaring that with Fed independence.