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In his first few days in power, President Trump has demonstrated his intent to break down the status quo in the US and around the globe. But questions remain as to whether his policies will make America great again, or unintentionally hurt US exceptionalism.
In this article we look at what polices Trump announced on the day of his inauguration and what to expect in his first weeks in power, with a focus on areas that are most impactful for markets. There are reports that more than 100 executive orders were drafted1, which will likely be drip fed out to maximise press coverage over several days. Much will be noise and, if history is any guide, his bark his often worse than his bite.
Some of his cornerstone policies, like tax cuts require Congressional approval, where Republicans only hold a slim majority, and negotiations will likely take time.
As we have already seen, the early action will come through items that can be addressed by executive orders. We expected some of Trump’s first moves to be in immigration, tariffs, financial market deregulation, climate and energy. Meanwhile, legal challenges have already commenced against some of his initial executive orders, notably on immigration.
Shock and Awe on Immigration
As expected, Trump issued directives aimed at stopping the arrival of new illegal immigration into the US, including how border patrol agents operate, making it easier for asylum applications to be denied. Trump also ordered deployment of the US military and National Guard to parts of the Mexican border to assist with enforcement of what he has declared to be a “national emergency”. There are news reports of Federal agencies preparing to deport some immigrants already in the US within the first week. Deportations will get headlines and resonate with his voter base. However, longer term we do not think he will be able to scale up deportations to his target of one million immigrants a year. Mass deportations on this scale face many challenges, not to mention what we see as the risks to inflation and growth at a time when the US Federal Reserve is making progress on these areas.
Wait and see for Tariffs
In his inauguration speech Trump promised the creation of an External Revenue Service to collect tariffs, and federal agencies have been directed to study how tariffs might be implemented. Trump also repetitively threatened tariffs, and even said he was thinking of enacting tariffs of up to 25% on Mexico and Canada by February 1st. However, there was no explicit orders on tariffs. And Trump appears to have already shifted into negotiating mode with Chinese President Xi Jinping, announcing ongoing discussions between the two and refusing to commit to a date for implementing his 60% China tariff. Chinese stocks rallied on the day.
At the time of writing, Trump seems to be pursuing a gradual approach to implementing tariffs, which his nominated Treasury Secretary, Scott Bessent, favoured. A gradual approach is seen as better for markets, although his unscripted responses after his Inauguration speech to reporter questions on tariffs created volatility in currency markets.
An immediate focus on Climate and Energy
On day one Trump declared a national energy emergency, a bid to boost domestic energy production and undo Biden-era policies designed to fight climate change. Trump issued executive orders open more federal land and offshore territory (including Alaska’s Arctic National Wildlife Refuge) for oil and gas exploration and production, to speed up approval processes, and to resume processing export permit applications for new LNG projects.
Trump may also direct agencies to act in manner which restricts the issue of green energy-related Inflation Reduction Act (IRA) tax credits, but he will not be able to unwind the legislation itself without congressional approval.
President Trump also signed an executive order focused on reducing regulatory burdens, particularly those related to electric vehicle and household efficiency standards (including cutting the federal US$7,500 EV tax credit). Trump has also ordered the suspension of new offshore wind power leasing agreements.
Back on President Biden’s first day in office in 2021 he signed an agreement for the US to rejoin the Paris Climate Agreement. On day one of Trump 2.0 the order was given to withdraw the US from this agreement again.
ESG (Environmental, Social & Governance) investing may change during Trump 2.0. For example, Trump also vowed to ‘immediately ban ESG investments through executive order.’ However, legislation to affect this ban is unlikely to get Congressional support. In any case, institutional investors will continue to find a way to invest in line with their values.
Deregulation in financial markets
Deregulation of US financials through changes to legislation will have to wait for Congress, but directives are expected to be sent to financial regulators to interpret or enforce regulations in a less restrictive manner. The selection of pro-crypto David Sacks and Paul Atkins as White House Crypto Adviser and SEC Chair should allow broader adaptation within traditional finance.
US banks stocks, already enjoying a strong start to earnings season, may benefit from lower costs, more M&A activity with fewer regulatory hurdles and heightened volatility in markets could potentially improve profitability of their trading desks.
So far, the Federal Reserve’s board independence remains intact.
AI Infrastructure investment
As at the time of writing there are reports that President Trump will also announce a US$500 billion in private sector investment to build artificial intelligence infrastructure, via a joint venture between OpenAI, Softbank and Oracle. Maintaining AI leadership over China and US pre-eminence in this space is clearly part of his vision of a “golden age of America”. This could be supportive of US tech companies who are critical partners in this vision.
Will Trump’s policies hurt US exceptionalism?
As of January 2025, the US economy has been the standout across developed market countries. Even before the US election, US GDP remained surprisingly robust and the S&P500 has returned +20% for the last two calendar years in a row.
Source: Bloomberg. As at 31 December 2024. Estimates are Bloomberg consensus estimates. Actual results may differ.
In 1900 the US represented 14.5% of global stock markets in terms of capitalisation, today it is 66.6% of the MSCI All Country World Index.2 What is it that makes the US so exceptional, and will its equity market continue to defy gravity in 2025, as it has in recent times?
The size and dynamism of the US economy is what make the US so special.
Firstly, the US has a large and flexible workforce. Wages are largely determined by the market with less input from trade unions; labour mobility is far higher across US states than it is between EU countries for example. And this workforce has continued to grow at a rate much higher than most other developed market economies, in large part due to immigration.
As a result, labour productivity outstrips that of all other major developed countries.
Source: Harver analytics, Goldman Sachs Global Investment Research.
Individualism, risk taking and the entrepreneurial spirit are embedded in the American psyche. Favourable bankruptcy laws increase new business creation, by lowering the cost of failure. The Economist reported that French entrepreneurs take more than nine times longer to recover from bankruptcy than US entrepreneurs. Moreover, business creation has boomed since Covid and shows no signs of slowing.
Source: Bloomberg. As at 31 December 2024. For illustrative purposes only.
And start-ups are nurtured by a venture capital ecosystem that is nearly twice the size of that of the next 9 countries combined. The world’s richest man might have grown up in South Africa, but he moved to Silicon Valley to create the future and his fortune.
Source: Dealroom.com. As at 31 December 2024.
One of the great advantages the US has historically enjoyed is low energy prices, which supports US manufacturing and other heavy power users. Recently, onshore US oil and gas production has grown significantly, making the US a net energy exporter again. This energy independence means it is not threatened by ructions in the Middle East in the same way Europe, China and Japan are.
Source: ECB, The ECB’s Monetary Policy: towards price stability. September 2024.
Finally, the ability to wield unrivalled hard and soft power, and the significant privilege of the USD, gives the US global leverage. This was seen through this US’s ability to freeze USD financial assets and payments when Russia invaded Ukraine.
Final say: It’s the economy (and the market), stupid
It seems unlikely Trump’s policies will disturb any of these core drivers of the US’s long standing economic strength. In fact, he will likely reinforce many of them. The possible exception is his stated target of one million deportations a year, however, we believe this is one promise he will not be able not keep. The sheer scale of the logistical effort, the likely legal challenges, and most importantly, the threat it imposes on efforts to curb inflation may all work against President Trump on this issue.
Ultimately, we believe markets are likely to act as a moderating influence on Trump. No modern-day president has had such a fixation with the stock market, he regularly uses it as a barometer for his performance. If a trade war or higher interest rates were to cause a sell off on Wall Street, then Trump will likely rein himself in.
Since Trump’s inauguration US government bonds and stocks have responded positively. We believe Trump’s policy platform is a tailwind for a broadening out in US equity market performance, as we discussed here. Australian investors can access broader US equity exposure through QUS S&P 500 Equal Weight ETF .
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Sources:
1. Trump is planning 100 executive orders starting Day 1 | AP News ↑
2. UBS Global Investment Returns Yearbook, 2024 ↑