As the U.S. presidential election draws to a close, presidential candidate Donald Trump is virtually confirmed as the 47th President of the United States. Trump secured victory in all key swing states, winning 312 electoral votes and defeating Harris by a substantial margin.
Additionally, the Republican Party has gained control of both chambers of Congress, with 53 seats in the Senate and 218 seats in the House of Representatives, signaling the onset of full Republican control in U.S. governance.
Given this backdrop, what impact could full Republican control have? How might Trump's policies shape the economic outlook?
Tariffs and Trade
Trump’s tax agenda is anticipated to emphasize extending key provisions of the Tax Cuts and Jobs Act (TCJA), such as reducing the top individual income tax rate and lifetime personal exemption limits, with intentions to make these cuts permanent.
Furthermore, he proposes reducing the corporate tax rate from 21% to 15% and exempting tips and overtime pay from income taxes.
On trade policy, Trump intends to implement tariffs of 10% to 20% on all imports and as high as 60% on Chinese goods.
Immigration
Under Democratic administrations, a relatively permissive approach to illegal immigration has resulted in a record surge of undocumented immigrants, potentially endangering domestic security. Trump's policy seeks to comprehensively remove illegal immigrants from the U.S. He has vowed to restore several of his previous-term immigration measures, such as the "Remain in Mexico" program and the travel ban.
Moreover, Trump plans to cease refugee admissions entirely and significantly limit the inflow of legal immigrants.
Energy
Trump supports traditional energy sources and has dismissed climate change as "a scam." He has pledged to "unlock" the potential of America's energy industry by rolling back restrictions on oil and natural gas extraction and promoting the construction of additional refineries.
He also plans to revoke the Biden administration's Inflation Reduction Act (IRA), aiming to scale back subsidies for wind, solar energy, and electric vehicles, while accelerating approvals for coal and nuclear power projects.
Financial Regulation
Trump has historically maintained a more lenient approach to financial regulation. Last year, in July, the Fed introduced a draft of the Basel III Accord, initially mandating that banks with assets over $100 billion retain sufficient capital to mitigate potential losses. In September of this year, the Fed proposed increasing the Common Equity Tier 1 (CET-1) capital ratio for Global Systemically Important Banks (G-SIBs), often referred to as "too big to fail" institutions, to 9%.
Trump's election could potentially result in the weakening or postponement of Basel III regulations.
Impact on the Economy
Based on the key policies outlined above, we have referred to the report by Oxford Economics to assess how Trump's policies may influence the economic trajectory.
The report suggests that if Trump is elected with full Republican control, extending the Tax Cuts and Jobs Act (TCJA) alongside the exemption of tips and overtime pay from income taxes could provide a short-term boost to real GDP growth of 1%. Over the longer term, however, restrictive immigration and higher tariffs on imports could slow economic growth.
(Source: Oxford Economics)
On the inflation front, fiscal expansion and increased import tariffs are anticipated to push inflation higher by 0.8 percentage points. To counter potential inflationary pressures, the Federal Reserve is expected to pause interest rate cuts by 2026 and initiate rate hikes in 2027.
(Source: Oxford Economics)
In conclusion, under a fully Republican administration led by Trump, tariff policies are likely to be quickly enacted through executive orders, while the continuation of the TCJA is projected to further enhance individual asset growth. Concurrently, corporate tax cuts may attract capital inflows and stimulate potential fiscal spending, boosting short-term GDP growth.
Nevertheless, potential labor shortages from stringent immigration measures and inflationary pressures from higher tariffs may pose challenges to long-term GDP growth.
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