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A guide to what the 2024 US election means for Washington and the world.
Almost 80% of Americans who said the economy was their top priority voted for Donald Trump in Tuesday’s US presidential election exit poll. That may be confusing to outsiders. After all, the recent performance of the American economy is enviable. Growth is strong, inflation is moderate, and unemployment is low. However, national strength outweighs local weakness. Household budgets are under pressure due to a 20% rise in prices since January 2021. It has become more difficult to cover rent and medical expenses. Credit card debt is increasing.
The more than 70 million Americans who voted for Trump are optimistic that their fortunes will improve. The stock market is also rising. The president-elect’s tax cut plans and courting of tech company “buddies” have Wall Street and Silicon Valley, the twin engines of the U.S. economy, salivating. Trump has a friendly vibe. He also inherited a good economic situation. The US Federal Reserve has begun a cycle of lowering interest rates, and price pressures are easing.
But the extent to which he actually implements his proposals could jeopardize his optimism and favorable economic backdrop. His plan mimics his first term, but has been enhanced. He wants to extend tax cuts enacted in 2017 and reduce taxes on businesses and payrolls. Tariffs, the dictionary’s “most beautiful word,” could be levied between 10 and 20 percent on all imported goods, and 60 percent on goods imported from China. Also on the agenda is the “largest deportation operation” in American history.
Whatever form it takes, the gist of Trump 2.0 is that inflation, borrowing costs, and the national debt will be higher relative to baseline. Tax cuts could support growth, but would also increase budget deficits. Tariffs will be reflected in retail prices, and reduced labor supply could also increase price pressures. How ironic that people voted for Trump because they were angry about the high cost of living.
What will happen? In one scenario, Mr. Trump would keep all of the promises he made in his inaugural address. If he does, he will hurt confidence and the economy. A full tax cut could blow up U.S. Treasury yields and destabilize financial markets. Tampering with the Fed’s independence would make the situation even worse. And strong immediate tariffs risk triggering a trade war, raising domestic prices, hurting U.S. exporters and squeezing global demand.
In the second scenario, President Trump’s most extreme plans could be suppressed or delayed by, say, advisers, lobbyists, or other members of Congress (assuming Republicans don’t actually control the House). This is good for animal spirits and will have less of a negative impact on the economy. In this scenario, President Trump’s less radical tax and regulatory cuts would support investors, while companies would either have time to invoke a state of emergency or, with the state of emergency diluted, import tariffs. The impact is not that large. Wall Street is now pricing in this more subdued forecast.
Then there’s the most optimistic screenplay. Here, President Trump’s tariff plan turns out to be mostly a negotiating tool. A trade approach could result in the imposition of import duties on a more selective basis. The administration could also do a better job of targeting and prioritizing tax cuts and bureaucracy-busting policies to lower and middle classes and investment. This could mean that the mood and economic fundamentals are intact or even stronger in 2028.
In any scenario, President Trump’s impulsive nature means there will be uncertainty and market volatility. That will be a drag on economic growth. But the most optimistic outlook may be if the next president fails to deliver on the promises he made to voters, a sign of how fast-paced and confusing American politics is.
