Trump’s Policies for His Potential Return to the White House and Their Impact on the Financial Market

Trump’s Policies for His Potential Return to the White House and Their Impact on the Financial Market

On July 18 (US time), Trump accepted the Republican Party’s presidential nomination. Currently, he is leading in most national polls and holds an advantage in swing states.

A Clear Path Back to the White House

A major shock occurred at the end of June during the first presidential debate. The numerous mistakes made by incumbent President Joe Biden (81 years old) raised concerns about his physical and mental fitness. Increasingly, notable figures within the Democratic Party are calling for Biden to step down and make way for another candidate. Amid Biden's turmoil, Trump was presented with an opportunity.

A greater shock occurred on July 13 during Trump's campaign event in Pennsylvania when the former president narrowly escaped an assassin's bullet. The moment Trump raised his blood-streaked fist in the air while Secret Service agents tried to protect him became a historic image, appearing across various media outlets.

Domestic Policies

Limiting the Independence of the Fed

In late April, some of Trump’s unofficial policy advisors revealed a draft to the Wall Street Journal aimed at severely limiting the independence of the Federal Reserve (Fed). However, Trump's campaign denied the draft.

In a conversation with Fox News in February, Trump said he would not reappoint Powell. Speaking with Bloomberg in late June, he stated he would let Powell finish his term (expected to end in May 2026).

Monetary Policy

Trump also has plans regarding monetary policy, at least in the short term. He warned that the Fed should avoid lowering interest rates before the November election as it would indirectly boost both the economy and Biden.

Wall Street expects the Fed to cut rates twice this year, including once before the election. “The Fed knows they shouldn’t ease monetary policy before the vote,” Trump emphasized.

Energy Prices and Budget Deficit

On the issue of inflation, Trump stated he would lower prices by allowing the US to exploit more oil and gas. “We have more black gold than anyone else,” he told Bloomberg.

Trump wants to extend the tax cuts he enacted in 2017. The Congressional Budget Office estimates that extending them would result in a federal budget shortfall of more than $4 trillion over 10 years. Additionally, Trump plans to further reduce corporate taxes. In the context of still-high interest rates, his tax cut plans could exacerbate America’s debt burden.

Immigration Policy and Cryptocurrencies

On immigration policy, Trump believes that stringent restrictions on immigrants are key to boosting wages and jobs in the US. He described immigration control policies as the “most important factor” in reshaping the economy, especially benefiting minority groups he aims to win over.

Another noteworthy point is Trump’s growing sympathy for the cryptocurrency industry, contrary to his first term. He now believes that Bitcoin and other cryptocurrencies should be mined in the US.

International Policies

If re-elected, Trump said he would impose a 60% tariff on all goods imported from China and a 10% tariff on all goods from other countries. Trump praised former President William McKinley, stating that during McKinley’s term, he raised enough revenue from tariffs to avoid federal income taxes but was never credited.

Trump’s selection of Senator J. D. Vance as his vice-presidential candidate is evidence that the new administration would maintain a tough stance on China. On July 15, “Vice President” Vance told Reuters that China is the “greatest threat” to the US.

Potential Impacts

Inflation

Trump plans to cool prices by pumping more crude oil. Increasing US “black gold” production could indeed lower global fuel prices. However, increased oil extraction might not aid the ongoing fight against US inflation. Trump’s tariff policies will drive inflation up, increasing the average annual costs for a median-income household by $1,700.

USD, Stocks, and Bonds

The USD could strengthen, as the Fed would need to raise interest rates again to control inflation or due to Trump escalating trade wars. Extending the tax cut program would also inflate the budget deficit, driving the USD higher. Rising inflation, higher interest rates, and a stronger USD would pressure stock prices. However, the US stock market might still perform well due to the AI boom overshadowing macroeconomic concerns.

Investors are likely to sell long-term Treasury bonds due to concerns over the budget deficit. During Trump’s second term, Washington is predicted to borrow an additional $4,000 - $5,000 billion over 10 years. Trump’s victory could boost the cryptocurrency market, as the regulatory environment might become more favorable for digital assets.

Challenges for China’s Economy

Trump’s plan to impose a 60% tariff on Chinese goods poses a significant risk to the growth rate of the world’s second-largest economy. The US is China’s largest trading partner by nation. Some experts are calling for Beijing to inject more stimulus if it aims to achieve the annual growth target of 5%.