In the build up to Donald Trump’s commanding election victory, corporate treasurers in America told Treasury Today that it was their job to prepare for either a Trump or Harris win. Behind their concerns, the message was business as usual and confidence that their experience in navigating through political cycles stood them in good stead.
Still, Trump’s protectionist policies on tariffs and trade promise a departure from decades of US economic policy with potentially profound implications for companies around the world. Tariffs are expected to push up inflation and interest rates, and companies will face more pressure to reshape their supply chains away from China. Elsewhere, he has pledged sweeping tax cuts that could reduce corporate tax to 15% in a bid to boost growth and jobs and has promised to cut immigration with implications for industries reliant on immigrant labour.
Trump’s protectionist trade policies threaten a universal tariff of 10% to 20% on all imports and as high as 60% on goods from China, backed by his belief that tariffs will protect American jobs and industries by promoting reshoring; incentivise domestic production and reduce reliance on foreign imports. In contrast to Harris, his policies hold implications beyond strategic sectors to businesses like fast moving consumer goods.
“There is no reason he won’t do it,” said Menno Middeldorp, Global Head of Rabo Research where a baseline scenario assumed a Trump victory. Speaking at the Working Capital Forum in Amsterdam on the day of the election he said, “it fits into his idea of how the economy works, and he can do it. The President has the power to introduce tariffs.”
US tariffs could trigger a series of tit-for-tat measures. For example, during his first presidency, tariffs on steel and aluminium sparked retaliatory tariffs from Canada and the European Union which targeted US agricultural exports. A cycle of escalating tensions could harm economies on both sides. Investment bank UBS warned it could result in a downturn in share prices for US multinationals that rely heavily on international supply chains, projecting that a 10% tariff could lead to a 10% contraction in the stock market.
One industry closely watching developments is the tech industry. Companies like Nvidia and Apple rely on Taiwan Semiconductor Manufacturing Company to produce their chips. New tariffs on Taiwanese imports could raise the costs or disrupt the supply of AI chips. These companies will also feel the impact of higher tariffs on imports from China where they have far-reaching supply chains.
Tariffs could also trigger inflation and higher interest rates. A report from the Peterson Institute for International Economics predicts that inflation rate could rise to between 6% and 9.3% by 2026 under Trump compared to an estimate of 1.9% without his policies. US consumers could lose between US$46bn and US$78bn in spending power a year if Trump’s proposed tariffs were implemented, the National Retail Federation recently estimated.
Meanwhile, high inflation will reduce the ability of central banks to cut interest rates, warns Middeldorp who flags the likelihood of higher interest rates and fewer rate cuts in both the US and Europe, predicting long-term interest rates will also move up. Although Trump has indicated his desire to weaken the dollar, his economic policies could do the opposite.
In many ways, companies with a large exposure to China in their supply chain are well prepared. They have used the years since Trump was last in power to diversify their supply chains. Biden also viewed China as a key geopolitical competitor and corporates have drawn on subsidies and tax credits to onshore and near shore. A Trump presidency means companies will just step up an adaption already underway, says Ruben Nizard, Head of Political and Social Risk Analysis at Coface. “Businesses will continue to bring things closer to home and shield their operations from the threat of increased tariffs on Chinese imports,” he says.
Middeldorp also argues the tide has already turned. The US already imports less from China and MNCs have changed supply chains to bases in countries like Vietnam, he says. Now it remains to be seen if emerging US trade partners in SouthEast Asia that have benefitted from shifts in manufacturing from China become the next target. And if global trade will withstand the latest shock or if stagnation sets in after a long period of globalisation.
One area shifting trade flows will manifest is in energy, continues Middeldorp. China and the EU will increasingly focus on building out renewables and reducing their dependence on fossil fuels. Europe’s focus on renewable energy and its own defence will also add fuel to inflation and structurally higher interest rates. “It all needs money, and it needs to be borrowed,” he said.
Businesses will continue to bring things closer to home and shield their operations from the threat of increased tariffs on Chinese imports.
Ruben Nizard, Head of Political and Social Risk Analysis, Coface
Trump’s tenure gives the US fossil fuel industry another boost. The new president has pledged to approve new liquefied natural gas terminals, lift Biden’s freeze on Alaskan Arctic drilling, cut regulations on greenhouse gas emissions and end incentives and targets aimed at encouraging the rollout of electric vehicles and renewables. Expect consequences for sectors like offshore wind which rely on federal approvals and that Biden encouraged with ambitious targets.
Still, fossil fuels also thrived under Biden. Under his tenure – and building on a momentum from Trump before – the US reached record levels of crude and national gas production to become a net exporter of oil and gas and create the highest trade surplus in terms of energy ever.
Bitcoin is another beneficiary of a Trump presidency. He has pledged to make the US “the bitcoin superpower of the world,” promising to end the industry’s “persecution” and introduce more crypto friendly legislation which could see him waive restrictions and potentially block the US Federal Reserve from launching a central bank digital currency. He has also pledged to add bitcoin to the Fed’s balance sheet.
If Republicans take control of the US Senate and the House of Representatives (uncertain at the time of writing) it hands Trump enough legislative power to create more business certainty. A divided Congress would have made it more challenging for businesses to try and plan and the likelihood of more executive orders that mean policy can be changed in an instant and companies must navigate regulatory whiplash. Still, corporates have grown used to executive orders. Biden, Trump and Obama relied on executive orders to get things done because of the challenges they faced passing legislation through Congress.
Under the Biden administration, the government took a significant role in industrial policy to guide and stoke the economy. Like the Inflation Reduction Act, US$500bn in new spending and tax breaks to boost clean energy amongst other sectors; the CHIPS and Science Act, designed to strengthen manufacturing, supply chains, and national security, and the Bipartisan Infrastructure Deal that has seen huge investment infrastructure and competitiveness.
It remains to be seen the extent to which Trump will carry through his promises to rip up these initiatives. Policy changes will have implications for manufacturing jobs in the US. Moreover, Coface’s Nizard notes that much of the electorate and business community favour the state support. “The business community is in favour of these incentives which align with the objectives of manufacturing in the US,” he says.
If Republicans secure a clean sweep of the House and Senate it could smooth the governance and brinkmanship around the debt ceiling that has characterised recent years with disagreements threats of government shutdowns. One of Trump’s first tasks after his inauguration in January will be to agree a deal on the budget and get the ceiling lifted or suspended further.
Analysts believe the deficit is likely to remain elevated, but the level of US debt is unlikely to impact America’s credit rating further. A year ago, rating agency Fitch downgraded America’s sovereign rating to AA+ from AAA on account of the deficit and rising debt burden. Fitch warns the next administration must face challenges that were once long-term but have now loomed closer into view like America’s aging population, higher social security and medicare costs and the rising cost of interest on government debt which has overtaken defence spending and medicare.
Trump is expected to choose a new Federal Reserve chair after the term of Jay Powell, the current head of the central bank, runs out in 2026. The new President has been a harsh critic of Powell in the past for failing to cut interest rates as much as he wanted in 2019 and has expressed a desire to have more influence over the Federal Reserve’s decisions. It spikes the risk of financial markets reacting to any indication that the Fed’s independence is under threat, potentially exacerbated by the large deficit.
Trump’s presidency has sparked concerns amongst Asia’s trade dependent economies where countries like South Korea, Japan and Australia may find doing business with China increasingly challenging.
Oxford Economics has said that “non-China Asia” would be a net loser with the region’s exports and imports predicted to fall 8% and 3% respectively.
The words of one Asian treasurer provide a degree of comfort, however. Corporations in China and India won’t be hugely impacted by who is in the White House, they said. “It is just a new guy with a megaphone. Nothing much changes underneath.”
