Julius Baer: What to Keep an Eye On From Trump Inauguration
Although Donald Trump has barely commenced his latest term as US President, there has already been a flood of headlines. Julius Baer reviews several key areas and their potential impact.
The 47th President of the United States is keeping market analysts occupied with ample statements, executive orders and other actions. According to a note by Julius Baer, investors should brace themselves as tariffs and geopolitics will be «used intensively to strike deals» while rates, labor, and oil market realities will «partially hinder these ambitions».
«With the inauguration of President Trump, we are bracing for an overwhelming flurry of policy news,» said the note authored by head economics and next generation research Norbert Rücker as well as chief economist David Kohl.
«The ‘Make America Great Again’ philosophy aims to give the United States a bigger slice of the global economic pie. The negotiation strategy follows a shock-and-awe approach. Both suggest lots of confrontation and noise ahead. What topics do we expect to pop up immediately and what impacts do we assess?»
Low Taxes
Trump’s campaign promised to either extend expiring tax cuts or introduce new ones. According to Julius Baer, these changes are important for the growth outlook and should support consumption and investment, «keeping the US economy close to overheating territory».
«That said, financial markets, i.e. yields, have already started to become a budget-disciplining element.»
Tariffs Risks
Trump's trade war rhetoric has been a headline issue, most notably his threat to impose up to a 60 percent tariff on imports from China.
«We still see tariffs mainly as negotiating tactics to get the most out of any deal, and doubt that the ultimate intention is their imposition,» the bank commented. «If this happens regardless, the burden rather rests on foreign producers, given the US’ consumption dominance.»
Energy Policy
One of Trump’s top agenda items is to improve the cost of living with a focus on reducing energy prices. Julius Baer underlined the following: «economics dictate US oil and gas supply today».
«Deregulation will not ignite a drilling boom,» the bank said. «The Biden-era Inflation Reduction Act enjoys strong Republican support, as most clean energy investments are done in the Midwest. The act is unlikely to be fully abolished. Given its popularity, the topic of energy might be first on the agenda, though fuel prices have not been an inflation issue.»
Geopolitical Tensions
Energy markets were also called a «prime barometer for geopolitics» as it dominates global trade with some countries highly dependent on petro revenues.
«The sanctions on Russia, Ukraine’s transit stoppage, and Saudi Arabia’s ample spare production capacity offer lots of negotiating options,» the bank explained. «The bargaining to find deals in Europe and the Middle East will likely kick off immediately. This process creates temporary uncertainties, but the outcome is likely more rather than less oil supply.»
Immigration and Labor Market
Finally, Trump also promised to roll back immigration policy in order to prioritize the needs of local citizens. However, this could increase risks to growth and inflation.
«With the native-born labor force stagnating, immigration has accounted for most of the growth in employment,» Julius Baer said in the note. «Any shortfall in labor supply has the potential to overheat the economy and re-ignite inflation. We will see how the new government balances the topic’s political popularity and its economic risks.»
