Alongside winning the presidency and the House of Representatives, Republicans regained control of the Senate, amplifying Trump’s mandate to pursue significant policy changes.

Domestic impact

Domestically, Trump’s victory grants Republicans a strong position in the upcoming tax reform debates, with a mandate to reshape the judiciary and implement conservative policies. Trump has pledged aggressive action, including a crackdown on immigration, deep tax cuts and regulatory rollbacks.

Economic concerns dominated the election, as Americans wrestled with inflation and a sluggish post-pandemic recovery. Trump capitalized on these frustrations, drawing support from young and minority men, which helped him clinch critical battleground states like Pennsylvania, Georgia, and North Carolina.

International trade and tariffs

Trump’s trade policies could signal a new era of protectionism, with plans to impose steep tariffs on imports from China and other countries. Mexico and Canada, as close US trading partners, would likely bear the brunt of these policies.

For most nations, the negative impact on economic activity would be modest, but trade flows could shift notably, with new domestic markets filling the gap left by reduced US imports. As US products become less competitive due to increased input costs, many countries might displace US goods in their own economies and abroad.

China

In a renewed trade confrontation, China could retaliate with similar tactics as before, focusing on agricultural and energy products from Republican-leaning US states.

Historically, China has targeted agricultural goods for restrictions to minimize its own economic fallout. Yet with its formalised export-control regime, Beijing could adopt more extensive measures, especially if it perceives a containment strategy from the US. While China’s response may initially be proportional, heightened tensions could spur more aggressive controls, influencing global supply chains.

Transatlantic relations and Europe

A new Trump presidency could strain US-Europe relations, especially if protectionist trade policies and tariffs targeting European industries are implemented. The European Union may offer specific concessions to mitigate economic friction but would likely retaliate if broad-based tariffs were imposed. Key sectors such as chemicals, pharmaceuticals, and machinery, which heavily rely on the US market, would be particularly affected by heightened trade barriers.

Investment implications

Trump’s policies can be summarised as lower taxes, higher tariffs, and more domestic energy production with potentially less support for the energy transition.

The impact of lower taxes would increase corporate net earnings but higher tariffs and potential retaliatory measures from other nations could mean less international competition in domestic US markets and results in greater revenues from domestic US industries. That said, any industries that rely on imported goods will face higher costs. This should be more beneficial to smaller companies in the US, focused on the domestic economy and with shorter, less international supply chains.

Meanwhile, non-US companies could face lower revenues and margin pressure in the short term if tariffs and trade frictions do escalate. However, they may be able to replace lost trade with other international partners. Also, there is potential for the relationship between European and Asian companies to realign, though undoubtedly while under pressure from Washington.

Higher tariffs could lead to stickier US inflation in the short term and may lead to the US Federal Reserve delaying the timing around which it reduces interest rates. The resulting higher bond yields should be positive for financial companies, particularly banks, but it will mean higher costs for more indebted companies.

Specific sector impacts of tariffs are very difficult to assess without more detail at this stage, though it’s possible that sectors more exposed to trade in goods will be more negatively affected than those exposed to services. Hence the software side of various technology companies should do well (such as e-commerce, digitalisation/ streaming services), while hardware could face some challenges.

The impact on bond markets is likely to be worse for bonds with longer maturities than those with shorter maturities.

We have kept lower exposure to more sensitive areas of the bond market throughout this year, but the current sell-off creates an attractive entry point which we are considering for portfolios over the coming days and weeks.