With Donald Trump’s chances of a second term increasing in the wake of recent developments, his policy priorities are expected to have mixed effects on inflation, energy policy, trade, and other important issues.
Inflation appears to be a key focus of a potential Trump administration. In his acceptance speech at the Republican National Convention, Trump mentioned “inflation” 14 times, analysts noted in a recent memo.
The Republican 2024 platform places a strong emphasis on addressing inflation. The personal consumption expenditures (PCE) measure of consumer prices rose 18.1% from March 2020 to May 2024, with major increases in staples. However, analysts believe that the core PCE inflation rate could reach the Fed’s 2.0% target by the end of the year.
However, most consumers are not comparing the prices they pay now to those they paid a year ago (as economists do), but rather to those they remember paying at the start of the pandemic,” the analysts noted.
A key step in the Republican Party’s plan to combat inflation is to increase energy supply. Trump has made it clear that “drilling, baby, drilling” will be a priority from day one of his second term. This approach includes easing regulations on oil and gas production, with the goal of lowering energy prices, weakening the dollar, and stimulating economic growth.
However, analysts question how much additional supply is possible, given that U.S. energy production and net exports are already near record highs.
“In any case, deregulation should expand profit margins for U.S. energy companies,” the research firm said. “The forward profit margin for the S&P 500 energy sector has fallen from a peak of 12.8% on Nov. 25, 2022, to 10.6% as of the week of July 19.”
Trump’s potential trade policies, particularly tariffs, are another area of focus. The former US president has hinted that he could impose a 10% tariff on all imports and much higher tariffs on Chinese goods, perhaps as high as 60%.
In addition, there have been proposals to impose tariffs ranging from 100% to 200% on cars manufactured in foreign auto plants, especially those in Mexico.
This has led to concerns that such higher tariffs could lead to a return to inflation. However, analysts have pointed out that the Biden administration has also increased tariffs on China, yet import prices have continued to fall.
“Industrial relocations and increased nonresidential investment are already underway under the current administration, limiting new inflationary pressures,” they wrote.
In addition to the above, analysts and investors are also actively discussing the potential economic impacts of the 2020 US presidential election on immigration, tax cuts, fiscal policy, and regulation.
