What Are the Policy Implications of a Second Trump Presidency?

As recent polls and market trends predicted, Donald Trump has been elected president of the United States. With the uncertainty around the outcome removed, many investors will now focus on how a second Trump presidency could affect the economy and financial markets.

Before election day, American Century’s Multi-Asset strategy team analyzed Trump’s policy proposals. At a high level, we believe plans for higher tariffs and reduced immigration could lead to slower growth, higher inflation and higher interest rates in the coming years.

At the same time, however, the stimulus effect of tax reductions could offset some of these headwinds. Republicans won control of the Senate, but Trump will need a legislative majority in both chambers of Congress to fully implement the proposed tax code reforms. Control of the House hadn’t been determined at the time of this writing.

Even if Republicans win a House majority, legislative approval of all Trump tax and spending proposals isn’t certain. Concerns over the pace of rising budget deficits could weaken support among the most fiscally conservative legislators.

With or without a cooperative Congress, Trump can execute certain tariff, trade and immigration policies through executive orders. He also can wield power through cabinet department staffing and the authority to pull the levers of government.

Highlights of his proposals include the following:

Taxes

Trump’s tax policy priorities include corporate and individual tax reforms that would require legislative approval. He proposes to reduce the corporate tax rate to 20%, with an even lower rate of 15% for companies that manufacture their products in the U.S. He also wants to permanently extend the quicker capital expenditure depreciation rules enacted in the 2017 Tax Cuts and Jobs Act (TCJA).

Trump intends to permanently extend the tax rates established in the TCJA for individuals. He also proposes eliminating income taxes on tips, overtime pay and Social Security benefits. Additionally, he proposes reinstating the deduction for local and state income taxes, making auto loan interest tax-deductible and expanding the child tax credit to $5,000. He would allow the expanded Affordable Care Act (ACA) health insurance tax subsidies to lapse.

Tariffs and Trade

Trade is an area where Trump has considerable leeway to act without congressional approval. He has pledged to implement a 60% tariff on goods from China and increase investment restrictions on key Chinese sectors tied to national security. He also aims to increase restrictions on semiconductor exports to China and would seek legislation to revoke China's most favored nation trade status. Additionally, Trump proposes phasing out imports of essential Chinese goods.

In terms of broader trade policies, Trump says he intends to implement across-the-board tariffs of 10% to 20% on products from all countries. He also plans to reinstitute tariffs on EU steel and aluminum. Furthermore, Trump is considering legislation to remove the U.S. from the World Trade Organization.

Health Care

Trump aims to work through Congress to lower drug prices and accelerate efforts to privatize Medicare, including reducing hospital payments for outpatient care. He also supports legislation to cut Medicare Advantage payments to insurers and reduce Medicaid spending while implementing work requirements for Medicaid recipients. These measures are intended to decrease government spending on health care and encourage more private sector involvement in providing health services.

Immigration

Immigration was a major theme of Trump’s campaign. His priorities focus on significantly tightening immigration policies and enforcement. He can use executive powers to increase the deportation of undocumented individuals and implement more restrictive rules for legal work and student visas. Additionally, Trump will likely push for legislation to restore funding for the U.S./Mexico border wall.

Defense and Foreign Aid

Trump emphasizes increasing national defense spending while reducing or eliminating financial and arms support for Ukraine in the war against Russia. He also prioritizes strong U.S. support for Israel and would pressure NATO members to spend at least 2% of their gross domestic product (GDP) on defense.

What’s Next on the Path to Inauguration Day

In addition to overcoming any legal challenges, several hurdles must be cleared before Inauguration Day on January 20, 2025. The governor from each state must certify the outcome. From there, the Electoral College convenes on December 17 and must deliver its results to the U.S. Senate no later than December 25.

The electoral votes will be counted at a joint session of Congress on January 6, 2025. As president of the Senate, Vice President Kamala Harris will preside over the session in a ceremonial role. She has no constitutional authority to decide which votes to count.

Success Depends on Execution, Not Government Policy

As investors, we view election results and policy proposals as inputs rather than drivers of our decision-making. Individual companies will manage through legislative and regulatory hurdles with varying degrees of success. As we build our portfolios, we’ll evaluate companies and management teams based on their ability to navigate this complex landscape.

We believe in staying focused on your long-term investment goals and not succumbing to the emotions of the moment. Also, keep in mind that stock market volatility isn’t unusual in the immediate aftermath of Election Day. However, it has historically dissipated shortly thereafter and returned to normal patterns after the inauguration.¹

We also know from history that the stock and bond markets rise more often than they fall over time. Many gains come during short periods that can’t be predicted, so trying to avoid volatility by jumping in and out of the market can put your long-term results at risk.