Prepare for another Trump bump in 2020

What can we expect if Donald Trump wins again in 2020? These three big changes look likely, says Matthew Lynn.

Donald Trump Holds "MAGA" Rally In Central Pennsylvania

You have to take your hat off Trumponomics has worked well

2019 Getty Images

What can we expect if Donald Trump wins again in 2020? Here are three big changes that look likely.

Last week, Donald Trump launched his campaign to win a second term as US president from 2020, with the slogan "Keep America Great". The bookies are offering even money on his re-election, and in truth that seems too pessimistic. The economy has performed well with Trump at the helm, with strong growth, record employment rates, rising real wages, and a bullish stock- market. Very few presidents have failed to be re-elected with that kind of backdrop.

At the same time, the Democrats are veering off to the left, with candidates competing with one another for who can come up with the most punishing tax increases. It is hard to believe the US is ready for that. Certainly, there may be an economic crash before the election next year. Or a major foreign-policy disaster. Or a sex scandal even worse than the ones we have already seen (although that takes some imagining, to put it mildly). Barring any of those, however, Trump looks likely to win. So what should investors and the markets expect from a second term?

Deeper tax cuts

Trump's main achievement in his first term has been a radical simplification of a tax system that had grown more and more complex since Ronald Reagan last streamlined it three decades ago. The corporate rate was cut from 35% to 21%, while a range of personal taxes were reduced at the same time. And yet the corporate rate is still relatively high by global standards. The British rate is heading down to 17% and Ireland is down to 12.5%. Trump might well slash it again, with 15% an obvious target. The top rate of personal tax at 37% may well be another target. So might the estates tax of 40%. For a long time the US has had relatively high tax rates, especially once state levies are taken into account as well, along with a vast range of complex exemptions. Trump's instincts will be to slash the headline rates and scrap the exemptions as well, just as he did with the corporate rate and once he is re-elected he will have the power to do so.

A trade war with Europe

Trump has devoted his first term to attacking China, imposing tariffs, and forcing the country to open up its markets to US goods. He has had a few successes, but nothing dramatic, and it is unlikely he will be able to squeeze any more concessions from Beijing. Europe will be a more tempting target for his second term. Tariffs of 10% are imposed on US cars imported into Europe, far higher than the tariffs on BMWs and Land Rovers sold into the US. The EU has failed to agree a trade deal with the US mainly because it is determined to keep out its agricultural products. It is engaged in a war with the US technology giants. That is a tempting target for a president determined to help US companies. A round of punitive tariffs would bring the EU to the negotiating table, and win some concessions. It probably won't agree to liberalise its food market, but lower car tariffs and calling off the war on Amazon, Google and Apple look achievable.

A hobbled central bank

Trump has already tried and failed to impose two of his allies on the central bank. He has been engaged in a war of words with its chairman, Jerome Powell. That will intensify during a second term. The result? A Fed that is committed to the president's agenda. After Powell is sent packing, expect a Fed that keeps interest rates low, and steps into the market with more quantitative easing whenever it has to. Trump believes in expansionary monetary policy, and he judges his presidency on the strength of the Dow. He needs a compliant central bank to deliver both.

Trump may be chaotic and obnoxious, but his economic record is surprisingly good. His second term will almost certainly be even more pro-enterprise, and that may be good for the markets. But it will also be even more protectionist. Even so, there was a significant "Trump bump" on Wall Street when he was first elected. Don't be surprised if there is an even bigger one if he is re-elected in the autumn next year.

Recommended

Interest-rate rises mean more pain for stocks
Stockmarkets

Interest-rate rises mean more pain for stocks

Interest rates are rising around the world as central banks try to get inflation under control. That’s hitting stockmarkets – and there is more pain t…
13 May 2022
Anna Macdonald and Mikhail Zverev: Investing in innovative new frontiers
Investment strategy

Anna Macdonald and Mikhail Zverev: Investing in innovative new frontiers

Merryn talks to Anna Macdonald and Mikhail Zverev of Amati about investing in growth-focused innovation in the teeth of a tech-stock selloff, and the …
12 May 2022
The tech-stock bubble has burst – but I still want a Peloton
Stockmarkets

The tech-stock bubble has burst – but I still want a Peloton

Peloton was one of the big winners from the Covid tech boom. But it's fallen over 90% as the tech stock bubble bursts and and everything else falls in…
11 May 2022
We’re in a bear market – change the way you invest
Investment strategy

We’re in a bear market – change the way you invest

The financial world of 2022 is a very different one to that of 2021. Investors need to make substantial changes to their portfolios, says Merryn Somer…
9 May 2022

Most Popular

High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
Cryptocurrencies are crashing – so how low will bitcoin go?
Bitcoin & crypto

Cryptocurrencies are crashing – so how low will bitcoin go?

The entire cryptocurrency sector is crashing, with bitcoin now well below $30,000. This is big, says Dominic Frisby. So just how low could bitcoin go?
12 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022