The Policy Implications of the Election
With the uncertainty of the election behind us, the focus for markets has pivoted to the policy implications. The primary policies that are relevant to the market are trade, immigration, regulation and taxes. Three of these are rather simple to implement on “day 1.” Trade—particularly the tariffs and threat of tariffs—do not require Congressional approval. Tariffs can be imposed by the executive branch for several reasons, and the incoming Trump Administration is likely to pursue a number of avenues on this front early in the presidency. President-elect Trump has already threatened tariffs against Mexico, Canada and China. And the near instantaneous response from Mexico’s President was to cooperate on immigration. This “threat for coordination” dynamic was a hallmark of the first Trump Administration, and it will be an important tool in the new one. Regulatory shifts are mostly done at the agency level, and therefore policies can be rapidly changed across a variety of industries.
Currently, the transition team is announcing its picks to fill various roles. These announcements are garnering attention for all the correct reasons. With majorities in the House and Senate, the nominees will face fewer headwinds to their confirmations and more easily implement their desired programs. Importantly, the majorities in the House and Senate should allow for changes to the tax code. But that will take time. While much can be done quickly, taxes must be changed by Congress. There will be sticking points, and debates and concerns over spending and deficits will come to the fore. Various parts of the Tax Cuts and Jobs Act will be extended, but that will be an action for the second half of 2025, not day 1.
We are watching developments closely but do not see significant market shocks emanating from November. Markets will ruminate and fluctuate on shifts in policy as the announcements and rhetoric shift from social media to reality. The cadence of the execution matters, and many of the “least positive,” e.g., tariffs, are becoming clearer. The “most positive,” e.g., tax changes, remain distant. Generally, the market appears to be taking the news in stride as U.S. companies will adjust to various shifts without too much pain.
“Markets will ruminate and fluctuate on shifts in policy as the announcements and rhetoric shift from social media to reality.”
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