The Economic Consequences of Donald Trump
Bruno Cavalier, Chief Economist ODDO BHF Asset Management.
KEY HIGHLIGHTS:
- Donald Trump will return to the White House far better prepared than eight years ago.
- To stimulate U.S. growth, he states that he wishes lower interest rates and a weak dollar.
- However, his economic platform is poised to produce the diametrically opposite result.
- Two risks need to be monitored closely. First, the independence of the Fed could be called into question. Second, tariff hikes, a potentially devastating shock for Europe.
The inflation shock that occurred under Joe Biden’s presidency weighed heavily on the Democratic camp and discredited it during the U.S. elections on November 5th. Over the past four years, inflation has averaged 5% annually, peaking at nearly 9%. This is more than double the normal trend of recent decades. Consequently, voters predominantly chose the Republican camp, which ensured Donald Trump a landslide. Paradoxically, his economic platform is, at first glance, the most inflationary.
Economically, Donald Trump’s core ideas are the same as eight years ago, but this time he is better prepared to implement them. In 2016, his victory surprised even his campaign team, which had no plan in forming the future government. Donald Trump had presented himself as a candidate outside the ‘system’, but the main positions in his administration had gone to traditional Republicans. This setting helped counterbalance the sometimes-radical ideas of the 45th President of the United States. In 2024, the picture looks entirely different. Donald Trump has reshaped the Republican Party at his own discretion and led it to victory, thereby creating dependencies among newly elected officials. The initial appointments of the future 47th president reveal his intent to surround himself with loyal individuals aligned with his views. Although this doesn’t rule out competence, it cannot be guaranteed in all areas..
Another major difference is that Donald Trump won with a comfortable margin, securing 58% of the Electoral College votes, without the slightest suspicion of fraud or foreign interference. This gives him greater legitimacy. He won the popular vote. All his legal troubles will suddenly be forgotten. Trusted think-tanks have been working in his orbit in recent months, and he can count on powerful allies on Wall Street and, through Elon Musk, in cutting-edge sectors. Republicans have also regained the majority in the Senate. Their views are well represented in the Supreme Court.
In short, until the next midterm elections at the end of 2026, there are few obstacles that could prevent Donald Trump from implementing his program. The main restraint could come from financial markets if they were to conclude that his policy will cause more harm than good.
During his first term in office, Donald Trump’s achievements were numerous, although they were often overshadowed by his tantrums and intense political tensions (including two impeachment proceedings). A vast tax cut plan was adopted in 2017. The following two years were mainly devoted to the tariff war with China and the overhaul of the North American Free Trade Agreement.
