Market impact of Trump's first decisions

During the presidential campaign, in an interview with Fox News, Donald Trump suggested that if re-elected president, he would become a dictator for a day. He justified this by the need to quickly sign a number of important executive decrees. Trump announced that his priority would be to close the border and focus on security and the US economy, which he summed up with the slogan “drill, drill.”

The list of Trump's potential first decisions is long, covering primarily immigration, state functioning, international policy and domestic affairs. There is talk of 60 or even 100 decrees, indicating an intense start to the presidency. Although 2017, and especially its beginning, may provide some indication of what is expected. It is worth noting that the reforms at the time, although media-oriented and positively influencing financial markets, did not produce spectacular economic results. Will this time be different?

Mass deportations?

Trump stressed that there has never been a mass deportation program in US history. There are more than 11 million illegal immigrants in the US, but Trump is likely to focus on the less than 10% of them who have come into conflict with the law. According to recent Wall Street Journal reports, Trump is considering imposing a state of emergency at the border with Mexico. In addition to potential deportations, Trump is certain to sign an executive order to intensify construction of a wall on the border with Mexico and restrict the flow of new immigrants, making it more difficult for them to enter the US. These decisions could significantly affect the exchange rate of the Mexican peso. Trump also intends to restrict so-called “citizenship by birth,” that is, the acquisition of citizenship by children of immigrants born on U.S. soil. However, this change may be difficult to implement due to constitutional provisions. The reinstatement of the ban on entry to the US for citizens of certain Muslim countries (including Syria, Libya, Yemen and Sudan), introduced in 2017 and rescinded by President Biden, is also likely.

Pardons for supporters?

Trump has repeatedly called those arrested for storming the Capitol on January 6, 2021 “political prisoners” and “patriots.” He announced that he would begin issuing pardons in the first minutes after taking office. He also announced a crackdown on his political opponents. Although the decision is not directly relevant to financial markets, its making in the first hours of his presidency could say a lot about his style of governance for the next four years.

Will Trump save TikTok and “free the Internet”?

On the night of January 18-19, a law went into effect in the US banning TikTok, a popular social networking platform from China. Trump has announced that his first decision will be to issue an executive order suspending the ban for 90 days. There are reports that he wants to work out a solution to restore TikTok's operations, potentially by establishing some form of US control over the app. A joint venture is being considered, with 50% of the shares owned by China's ByteDance and 50% by a US entity. Such a company, listed on the stock exchange, could generate significant profits, and it is possible that it would attract the interest of Elon Musk himself, who opposed the ban on TikTok.

There has also been much talk of a decree on freedom of speech on the Internet. Trump has in the past criticized social media platforms for censoring content, and his previous administration tried to introduce regulations in this area. However, there is a lack of concrete announcements and expectations about the shape of this “freedom of speech.”

Massive tax cuts and taxation of foreign income

President Trump not only wants to extend the Tax Cut and Jobs Act, which lowered direct taxes and increased tax credits, but is seeking further cuts. While there are no specific plans for personal taxes, Trump plans to continue cutting the CIT. In 2017, he cut the record-high global tax on corporate profits from 35% to 21%. He is now aiming to lower it to 15%. As the example of Ireland shows, a drastic tax cut could eventually result in an increase in government revenue, due to the return of foreign branch income registration and new company registrations. Theoretically, however, the cut would only apply to companies producing in the US. Trump also wants to create an office to collect taxes on profits of U.S. companies held overseas. These actions, however, require Congressional approval. Nonetheless, the announcement and promises themselves could have a positive impact on Wall Street investors, just as they did in 2017. Although the U.S. tax cut bill itself was only unveiled then in November, the S&P 500 gained 14% from January to November 2017. And then from the signing of the bill to the end of January, just before Wall Street crashed, the S&P 500 gained an additional 10%. 

Are we in danger of massive tariffs?

One of the points of Trump's presidential campaign was his announcement to impose heavy tariffs on the countries with which the US has the most trade. Trump announced a 60% tariff on goods from China, 25% on goods from Canada and Mexico, and 10% on all other foreign products. This would be intended to induce citizens to choose American products and force other countries to sign trade agreements that are more favorable to the US. High tariffs may increase budget revenues, but at the same time they will hit less affluent citizens, for whom basic products will become more expensive. Although Trump has the ability to impose tariffs through executive orders, broad measures of this type at the beginning of his presidency seem unlikely. Announcing targets targeting specific sectors may be perceived by Wall Street as prudent trade policy. Trump probably wants to scare rather than bring about a return of high inflation.

Oil at $100 a barrel because of the war in Ukraine?

Trump wants to force Russia to negotiate over Ukraine. The new U.S. Treasury Secretary, Scott Bessent, supports the introduction of tough new sanctions on Russia for this purpose. If Putin doesn't bow to pressure, the U.S. could impose sanctions on the entire Russian oil sector - major companies such as Rosneft and Lukoil, and the entire fleet. Although more than 90 percent of Russian oil goes to China and India, U.S. sanctions could lead to serious settlement and even transportation problems if NATO controls strategic sea straits. This could lead to an increase in oil prices even above $100 per barrel. On the other hand, Russia's entry into negotiations could prompt the US to ease sanctions as a goodwill gesture. Recent sanctions introduced by the Biden administration have pushed oil prices above $80 per barrel.

Another exit from the Paris Treaty

Trump is a supporter of fossil fuels, and in particular of the U.S. becoming independent of foreign supplies. Trump intends to exit the Paris Treaty's cap-and-trade carbon emissions by executive order, echoing the 2017 decision. Trump wants to reinstate the issuance of permits for new drilling, reverse any bans issued by Biden and introduce support for US mining companies. This is obviously good news for the consumer, who wants to pay as little as possible for a gallon of gasoline. However, the real impact of such decisions will be long-lasting, so in the short term, the issues of sanctions on Russia and the impact on OPEC will be crucial for the oil market. 

Worldview issues

Trump has promised his voters solutions to transgender issues. He announced, among other things, a ban on gender reassignment for children, a ban on transgender people from competing in women's sports, and a ban on transgender recruits joining the military. While these decisions will not directly affect the markets, they have drawn sharp criticism from liberal circles in recent months.

The dollar and cryptocurrencies

Donald Trump will want to lead the popularization of cryptocurrencies in the US. New authorities at the SEC, the CFTC and also a reshuffle among vice presidents at the Fed could lead to the later approval of Bitcoin as a de facto reserve. There is a long way to go, however, but Trump has already benefited from a wave of speculation about the popularization of cryptocurrencies before becoming president. Memecoin $TRUMP reached a capitalization of about $15 billion at one point, and companies affiliated with Trump are expected to hold 80% of the cryptocurrency's supply. The launch of this cryptocurrency just before the inauguration, however, has raised considerable ethical controversy. 

The U.S. dollar has gained nearly 6% since the election and currently has no rivals in the overall currency market. Trump's policies may affect the dollar in two ways, but the upcoming executive orders are unlikely to affect the world's most important currency much. It is worth citing 2017, when the dollar depreciated very sharply in the first months of the presidency, although this was also related to the sheer economic situation of the US and other major countries in the world. 

Is a new era in US politics coming?

Trump's possible return to the presidency could usher in a new era in U.S. politics that will affect almost every aspect of global politics. Trump's plan is ambitious, but the many elements of his strategy must fit together perfectly to ultimately achieve his desired goal of restoring US dominance in the world and the well-being of its citizens. Trump wants to play hardball in foreign policy, which, if opposed by the international community, could negatively affect the economy. Wall Street and investors are looking at his policies with hope, especially from a fiscal perspective. However, it is worth remembering that many decisions will require Congressional approval, which even with the Republicans in full power will not always be easy or quick. Trump's policies carry a lot of uncertainty, but the markets, based on his previous term in 2017-2021, know what to expect from him.

XTB Poland