US: Trump 2.0 policy expectations

Domestic policy:

• Fiscal:
  • Tax (if red wave):
    • Should Republicans win a House majority, clinching a Republican governing trifecta and the use of the budget reconciliation mechanism, we expect President-elect Trump would prioritize:
      • extending the entirety of the Tax Cuts & Jobs Act (TCJA),
      • potentially pursuing further individual tax cuts selectively,
      • cutting the corporate tax rate to as low as 15%,
      • overturning taxes included in the Inflation Reduction Act (IRA), including the:
        • book minimum tax,
        • stock buyback excise tax,
        • coal excise tax,
        • reinstated Superfund tax.
  • Tax (if divided Congress):
    • Should Democrats retain the House of Representatives, they will very likely prevent Trump from enacting:
      • any new individual tax cuts,
      • any corporate rate cut.
    • However, we expect Democrats could be convinced to ‘go along with’:
      • an extension of the Tax Cuts & Jobs Act (i.e. extending the ‘Trump Tax Cuts’),
      • in a bipartisan, bicameral tax package,
      • that could include sweeteners like an expansion of the Child Tax Credit.
        • Please see our note “US: Trump tax cut bill renewal will be a major legislative fight in 2025” for more.

• • Spending (if red wave):
    • Again using budget reconciliation, we expect Republicans will target the budgets of the:
      • IRS,
      • EPA,
      • Department of Education,
        • though this in particular may look more like redistributing funds to states than cutting funds altogether.
    • That said, we would argue cutting spending is easier said than done, even for President Trump with Republican control of Congress,
      • as we expect spending on defense, veterans and Medicare will all remain ‘safe,’
      • and the cuts mentioned above, even if enacted extensively, will do very little to offset extended and expanded tax cuts.
  • Spending (if divided Congress):
    • Similarly (and to an even more significant extent), we expect Trump will struggle to find latitude to cut spending when negotiating with a Democratic House.
    • In this scenario, we would expect Trump to focus almost exclusively on ‘pulling back on’ Biden administration spending, primarily by:
      • maximally, eliminimating IRA tax credits, especially on EVs,
        • though this is likely to have a more significant aesthetic than economic impact, as:
          • Trump does not have the unilateral authority to simply ignore legislation passed through Congress,
      • more achievably, narrowing the scope of tax credit applicability,
        • through executive authority,
        • in overturning (and replacing) Biden-era climate guidance,
        • and perhaps steering IRA funds towards fossil fuel investment.
          • Please see our following notes for more:
            • SIGNUM: US: Trump *still* unlikely to succeed in cutting IRA funds
            • SIGNUM: US: Trump likely to only partially 'kill' EVs

• Energy:
  • We expect Trump will follow through on his emphasis of expanded fossil fuel production, via:
    • expanding leasing on Federal land,
    • removing Biden-era rules on pollution,
    • streamlining (i.e. loosening) environmental approval processes.
  • However, these changes may prove to have a minimal short-term impact, as:
    • additional output from new leases will take 4-8 years to hit the market,
    • opening new projects up to Democratic reversal following the 2028 election cycle.
  • Where Trump may have a more immediate impact is overturning the EPA’s electric vehicle mandate,
    • thus spurring more gas demand for longer.
  • The vast majority of Trump’s energy policy will be conducted by executive action, limiting Congressional influence (i.e. with minimal delta between Red Wave and Divided Congress scenarios).

• Crypto:
  • While we are skeptical of Trump’s personal interest (and/or belief) in cryptocurrency…
    • JD Vance is personally interested in crypto,
    • And we do believe Trump will jump at the opportunity to curtail SEC overreach on principle,
      • including by demoting Gary Gensler from his position as SEC chair,
      • though Trump will likely run into legal hurdles should he attempt to remove Gensler as a commissioner altogether.

• Dollar:
  • The Trump camp favors a weaker dollar, but it is doubtful it will get its wish, as we do not believe the administration will be willing to undertake most of the highly unorthodox steps necessary to pursue such a policy (e.g. inbound capital controls).
  • In contrast to its diverse views about the dollar’s value, the Trump camp is divided on the dollar’s role as a global reserve currency, with:
    • Trump eager to ‘defend’ the dollar’s status as global reserve currency.
    • While Vance, among others, see the dollar’s status as a ‘burden’ for the US.
      • We expect Trump’s view to dominate, which will raise the question of how seriously to take his threat of ‘going after’ countries that seek to move away from the dollar – a prospect we suspect may become a meaningful theme in the second Trump administration.
        • Please see our note "SIGNUM: US: Trump 2.0 crypto & dollar plans" for more.

• Schedule F:
  • We expect Trump will enact Schedule F reforms to the civil service, allowing him to redefine up to 50,000 jobs as “policy-oriented” positions that are subject to being fired without traditional civil service protections.
  • While we do not by any means expect all 50,000 of those employees to be fired, the policy itself will stifle policy debate and allow the administration to fill jobs – most of which will be at the State Department, Defense Department, and in the intelligence agencies – with ‘loyalists.’

• Deregulation:
  • Trump will also pursue deregulation across the government, with the aim of reducing regulatory burdens on the economy and on businesses. He will do so through executive orders, through weakening the traditional independence of agencies like the SEC and FCC, and by simply ignoring regulations that are on the books but with which he disagrees.

• Immigration:
  • We anticipate that Trump will prioritize sealing the border and deporting undocumented immigrants who have committed crimes in the US.
    • In other words, we do not expect the mass deportations Trump has talked about on the campaign trail, as those would be too logistically and legally challenging. But a targeted deportation of criminal illegal immigrants is do-able and will allow him to fulfill (partially) a campaign promise.

Foreign policy:

• Trade:
  • China:
    • We expect the Trump 2.0 administration will be ‘tough’ on China insofar as it will not be interested in compromise with Beijing, given:
      • Its belief that China’s failure to fulfill the Phase 1 trade deal commitments was a ‘stab in the back’ and ‘proves’ that negotiations with Beijing are not worth the effort.
      • Its goal of making the US immune to any future leverage by China in critical national security-related economic sectors, no matter how cooperative Beijing may appear in the short term.
    • Where we are relatively more sanguine, however, is in our expectations for the levels and timing of associated tariffs:
      • in short, we expect said-tariffs to be low (c. 10%) and immediate, or extremely high (far upward of the threatened 60%) and backloaded (to later years) – but not both simultaneously.
        • Please see our note “SIGNUM: US-China: Trump 2.0 tariffs would be both above and below 60%” for more.
  • Europe:
    • It is well understood that a Trump 2.0 presidency will be negative for Europe (and the European Union in particular). Yet we believe the magnitude of that truth remains underappreciated. Indeed, several factors mean the EU is likely to be the biggest loser of a second Trump era:
      • President-elect Donald Trump:
        • 1) Is genuinely irked by key European policy decisions – all of which would be difficult to resolve even in the best of times; and
        • 2) He likely sees a window to ‘double-down’ on the US’s advantage, in recent years, at attracting capital relocation.
      • This suggests very little incentive to deescalate, even after a first opening salvo of trade tensions.
        • Please see our following notes for more:
          • SIGNUM: EU: Trump 2.0 pain still under-appreciated
          • SIGNUM: EU: Trump would likely mean EU-China de-escalation and more joint debt
          • SIGNUM: EU-US: Trump likely to be a much greater economic than security headache for the EU
  • Mexico:
    • We share the consensus expectation that President-elect Trump will place enormous demands on Mexico from the get-go – ranging from immigration to China to drugs. We lean more sanguine than some observers, however, in our belief that two considerations will allow Mexico to avoid the worst of fates at the outset of the second Trump administration:
      • 1) Mexico’s willingness to ‘play ball’ (i.e. acquiesce) in regards to the overwhelming majority of Trump’s demands – thereby ‘dodging’ his fury; and
      • 2) The Trump trade team’s prioritization of other matters and countries (see above) – leading them to ‘kick the can’ on Mexico toward the USMCA agreement’s scheduled review in 2026.
        • Please see our note “SIGNUM: Mexico: Trump 2.0 tensions wouldn’t be that bad, at first” for more.

• Ukraine:
  • We have yet to be convinced that President-elect Trump will succeed in reaching a negotiated close to the war in Ukraine, for the following reason:
    • While his mooted ‘peace plan’ is certainly ‘bad’ for Ukraine, one dimension that is often overlooked is that it is highly debatable whether Russia will see it as enviable either.
    • This could mean Trump will need to resort to meaningful carrots to entice Russian President Vladimir Putin into negotiations. But that in turn raises two challenges:
      • 1) Those carrots which the Kremlin wants most (i.e. access to Russia’s USD 280 bn in frozen foreign exchange reserves, and renewed / expanded access to the European gas market) are not items which Trump controls; and
      • 2) A decision by Putin to entertain negotiations over Ukraine may not be a good indicator of his intention to finalize such talks.
        • Please see our following notes for more:
          • SIGNUM: NATO/Ukraine: Not *that* different under Trump
          • SIGNUM: Ukraine: Trump-Zelensky meeting
          • SIGNUM: Ukraine: On ceasefire(s)

• Middle East:
  • We were extremely early in noting that a Trump 2.0 presidency would likely:
    • 1) Make demands on Israeli Prime Minister Benjamin Netanyahu to shorten his wars; and
    • 2) Side with Saudi Arabia’s preference for de-escalation with Tehran over Israel’s appetite for confrontation with Iran.
  • We stand by those two views, and (partially consequently) expect:
    • Relatively prompter wind-down of Israel’s war in Lebanon;
    • A concentration of Israeli efforts to erode Iran and its nuclear program in the US presidential transition period; and
    • Bargaining – if indirect (via Saudi Arabia) – with Tehran in the second Trump term.
      • Please see our following notes for more:
        • SIGNUM: Trump 2.0 Middle East policy not an Israeli honeymoon
        • SIGNUM: Iran post-election: bargaining, even under Trump
        • SIGNUM: Trump & Iran