What is the “Trump 2.0” economic agenda?

It is often said that the US election is not just about America, because the United States’ power, wealth, and influence ripple around the world. In fact, with a nominal GDP of $28.8 trillion, far larger than any other major economy, and household net worth of more than $150 trillion, the United States is at the center of global flows of information, capital, goods, and services. No other country plays a similar role in determining the direction of the global economy.

2024 USD Nominal GDP Forecast
(Billion USD)
Source: Haver, IMF, QNB analysis

Therefore, it is important to understand the impact of the US election on the global economy, especially because the two main candidates (Donald J. Trump and Kamala Harris) have different economic agendas.

This week, we’ll focus on candidate Trump’s economic agenda as the former president attempts to return to the White House and become the 47th President of the United States.

After serving as the 45th President of the United States from 2017 to 2021, Trump’s agenda is well known to investors and analysts: the slogans “Make America Great Again” (MAGA) and “America First” summarize the general spirit of his plan. In real economic terms, this translates into policies that are pro-business, pro-capital, mercantilist, and pro-domestic manufacturing. In other words, Trump favors deregulation and reduction of red tape in key areas, lower taxes for businesses and households, increased public investment and subsidies that benefit the country’s manufacturing industry and defense, and a protectionist stance on foreign trade.

Some of the measures Trump supports represent significant differences from the policies currently being implemented. We believe Trump’s economic agenda should emphasize three key points.

America’s Structural Tax Deficit
(2002-2024) Source: Haver, IMF, QNB analysis

first, If elected, Trump would tend to be aggressive in fiscal stimulus. Indeed, during his presidency, tax cuts and spending increases increased the public deficit from below-average 3.6% of potential GDP to 6% in 2019, before the pandemic led to an even larger deficit.

Currently, Trump is proposing to cut corporate taxes from 21% to 15%. Importantly, the individual tax cuts he approved in 2017 are set to expire at the end of 2025 and could be extended during his potential presidency. Overall, these tax measures are expected to lose $3-4 trillion in revenue, further widening already severe deficits. But it should boost the economy, supporting investment and consumption. This should also support the normalization of long-term US Treasury yields and the yield curve, as larger deficits and higher debt-to-GDP ratios may scare some fixed income investors and eventually demand higher premiums.

second, Trump seems determined to revive his protectionist agenda. He supports imposing higher external tariffs, with a minimum of 10% tariffs on the rest of the world and 60% tariffs on China in particular. If these measures are fully implemented under a possible Trump administration, and not just used as leverage in trade and investment negotiations, they could cause a significant shock to trade and investment flows. Other countries are likely to retaliate, which could lead to competitive currency devaluations and beggar-thy-neighbor tariff increases. It is worth noting that the tariff increase will not generate enough revenue to pay for the tax cuts. The tariff increase is expected to generate about $1.5 billion in additional revenue, less than half of the estimated cost of the proposed tax cuts. In terms of high-level impacts, the tariff increase will have a negative impact on overall real incomes both globally and in the United States due to the higher cost of final goods and services. On the other hand, it may be beneficial for investment and domestic manufacturing, as supply chains must be reallocated and new arbitrage conditions will be created that favor local producers.

third, If Trump returns to the White House, his stance on immigration could also have a significant impact on the US demographics and labor market. Not only has Trump proposed a mass deportation of 15 to 20 million undocumented immigrants, he has also proposed limiting the influx of legal immigrants on visas. Even for a country with a population of over 335 million and a labor force of over 162 million, these numbers are considerable. While we do not expect this measure to be implemented on such a scale if elected, even a less aggressive deportation plan would lead to worse working conditions, especially in the low-wage hourly wage sector. In the medium term, this could increase average wage growth, creating additional inflationary pressure. A less positive demographic structure would also have a negative impact on economic growth.

Comprehensive, A possible Trump “2.0” presidency would bring significant changes to the US economic agenda, particularly in the areas of taxation, trade, and immigration. Overall, the proposed agenda is expected to have a mixed impact on growth, as fiscal policy would boost economic activity, while trade protectionism and stricter immigration management would weigh on GDP expansion.