U.S. Elections: Economic and Geopolitical Outlook under the Trump Administration

The re-election of Donald Trump, along with a Republican majority in the Senate and House of Representatives, sets the stage for significant changes in political, economic, and geopolitical dynamics. This mandate gives Republicans substantial leeway to implement a program focused on deregulation, tax cuts, and economic protectionism, with far-reaching impacts both domestically and internationally. 

Election Results: A Return to a Protectionist Leadership 

The American public has expressed a desire for a leadership focused on security and purchasing power. Marc Lavoie notes that rising prices have eroded the middle-class purchasing power, leading to a rejection of the incumbent party. Trump’s victory and the public’s support for strong border security and strict control of illegal immigration reinforce the Republicans’ stance on both domestic and foreign policy. 

Expected Economic Changes: Deregulation, Tax Policy, and Protectionism 

The Trump administration plans to implement regulatory rollbacks, notably by easing environmental requirements and altering the Inflation Reduction Act. These policies aim to boost the energy sector and other key industries by reducing regulatory burdens. However, Marc Christopher Lavoie points out that this dynamic could drive large budget deficits and create inflationary pressures if significant tax cuts are enacted, alongside further inflationary effects on the cost of imports. 

On the trade front, Trump is proposing tariffs of 10-20% on general imports and up to 60% on Chinese products. This move aims to protect American industry but could lead to rising prices for American consumers and potentially reduce exports due to expected trade retaliation from China and other partners. 

Taiwan and U.S.-China Relations: A High-Stakes Issue 

The issue of Taiwan remains a central geopolitical concern between the United States and China. The Trump administration’s stance on Taiwan is ambiguous. On one hand, some in Trump’s circle advocate for increased support for Taiwan’s independence. On the other hand, Trump might take a more pragmatic approach, viewing Taiwan as a bargaining chip in negotiations with Beijing. 

Christian Crête notes that this strategic uncertainty could heighten regional tensions, particularly if Trump strengthens U.S. military support for Taiwan. Beijing, for its part, could respond with increased military pressure or by conducting more frequent military exercises around the island, raising the risks of direct confrontation. 

Geopolitical Trade: Sanctions and Global Repercussions 

U.S.-China trade relations are likely to see intensified protectionist measures. Trump has pledged to impose drastic tariffs on Chinese imports, aiming to reduce U.S. dependency on Chinese manufacturing. In response, China could adopt retaliatory measures, utilizing economic leverage that could harm American companies operating in China. 

The technology sector is particularly exposed: under the Biden administration, export controls were tightened to limit China’s access to advanced technologies. This trend could continue or even intensify under Trump, with additional restrictions on American exports of semiconductors and other critical technologies to China. 

Federal Reserve Reactions and Monetary Policy Implications 

Trump’s expansionist policies and planned tax cuts could drive up budget deficits, putting pressure on inflation and limiting the Federal Reserve’s ability to cut rates. Christian Crête observes that the Fed could be forced to slow its rate-cutting cycle to prevent inflation from spiraling, a scenario the markets are already anticipating by adjusting their rate-cut expectations for next year. 

Tense relations between Trump and Federal Reserve Chair Jay Powell add to this uncertainty. Trump has frequently criticized the Fed in the past, and continued pressure on Powell could create a climate of uncertainty around U.S. monetary policy. 

Stock Markets: Sectoral Opportunities and Challenges 

Following the election results, financial markets reacted positively: the S&P 500 rose, the 10-year Treasury yield increased, and the dollar appreciated. These signs reflect investor optimism regarding Trump’s pro-business outlook. However, impacts will vary by sector: 

• Small-cap companies: U.S.-based companies stand to benefit from tax cuts and trade protection. However, highly indebted companies could feel the strain of rising interest rates. 

• Energy: Trump plans to encourage fossil fuel production, but oil companies are already operating at full capacity. An oversupply could put pressure on oil prices. 

• Technology: Companies reliant on imports, such as certain major retail chains, may see their margins shrink due to tariffs. 

• Renewable Energy: Although Trump’s policies seem unfavorable for this sector, some states continue to benefit from substantial subsidies, particularly in Texas, where local investment in green energy remains strong. 

International Consequences: Redefining Alliances and Global Market Impact 

Trump’s stance on international relations could affect the dynamics within NATO and U.S. alliances in Asia. The Trump administration may condition military support on increased commitments from allies, particularly in Europe, who may be required to raise their defense spending. 

Asian countries like Japan and South Korea may also be prompted to strengthen their defenses given rising regional instability. This militarization could strain relations with Beijing and lead to a reconfiguration of alliances in Asia. 

Outlook for the Dollar and Foreign Exchange Markets 

The dollar is expected to remain strong due to expansionist U.S. fiscal policies and relatively high interest rates. Christian Crête notes that European and Asian currencies face higher macroeconomic risks and more accommodative monetary policies, enhancing the dollar’s appeal. Nevertheless, a strong dollar could hinder American exports by making U.S. goods more expensive internationally. 

Conclusion: A Dynamic and Uncertain Environment 

Trump’s re-election is likely to reshape the U.S. economy with significant impacts on global markets and international relations. For investors, caution is key: inflation, uncertain monetary policy, and geopolitical volatility will require careful risk management. Indeed, U.S. policies may heighten tensions in certain regions, notably in Asia, while offering opportunities in domestic and pro-business sectors.