On the evening of November 6, Trump defeated Harris and took the lead in obtaining more than 270 electoral votes, sealing the victory of the 2024 US presidential election. At the same time, the Republican Party has successfully taken control of the Senate, and it is expected that control of the House of Representatives will also be in hand, achieving a complete victory in sweeping both houses.
Trump's policy platform: emphasizing "America First" and advocating "less taxation, less spending, and less regulation." The 2024 Republican Party platform is centered on "America First", emphasizing conservatism that returns to common sense, with a distinctly Trumpian personal style. Core ideas include reducing government intervention, cutting unnecessary government spending, deregulation, increasing oil production, strengthening border controls, and massive tax cuts at home and tariffs on the outside world. Compared with the 2016 party platform, 2024 emphasizes "America First" and tax breaks are more straightforward. The market expects Trump's policy to point to "economic growth + reflation" in the United States.
In the area of tax policy, Trump advocated tax cuts
Trump's economic strategy revolves around "tax cuts + tariffs". On the one hand, the tax cuts reflect the Republican Party's consistent philosophy of small government, which aims to stimulate economic growth by reducing government intervention. On the other hand, the increase in tariffs is not only intended to protect and support the development of domestic manufacturing in the United States, but also as a way to increase the country's fiscal revenue and help solve the problem of budget deficits.
In terms of specific tax cuts, Trump wants to continue some of the key provisions of the 2017 Tax Reform Act (TCJA), such as lowering tax rates for individuals and businesses, increasing the amount of the child tax credit, and increasing the standard deduction. At the same time, he also plans to eliminate or reduce some tax items, such as eliminating tax incentives in the field of green energy, exempting social security income tax, tip tax and overtime income tax, etc. However, Trump does not plan to extend the cap on the deduction of state and local taxes (SALT).
Regarding tariffs, Trump has proposed imposing a base tariff of 10%-20% on all imports, and increasing additional tariffs to up to 60% on Chinese imports in particular. This is done both to protect domestic industries and to deal with international trade imbalances.
Although the impact of tax cuts and tariff increases on the economy is in opposite directions, overall, these policies are likely to have a positive impact on the U.S. economy. According to Tax According to Foundation research, Trump's overall economic scenario is expected to boost long-term GDP growth in the United States by about 0.8 percentage points. Among them, the tax cut policy is expected to boost GDP growth by 2.4 percentage points, while the tariff policy (taking into account the 20% base tariff and an additional 50% tariff on Chinese goods, as well as possible retaliatory measures from trading partners) is likely to reduce GDP by 1.7 percentage points. This means that while the positive economic impact of the tax cuts outweighs the negative effects of tariffs, it is worth noting that high-income groups will benefit more from the tax cuts, which could lead to a more unequal distribution of income and wealth.
On the fiscal front, the long-term deficit ratio of the United States is likely to increase by about 1 percentage point
According to Tax According to the Foundation's assessment, Trump's tax cuts are expected to increase the U.S. deficit by $6.8 trillion over the decade from 2025 to 2034. By contrast, his tariffs are expected to reduce the deficit by $3.0 trillion over the same period, resulting in a net increase of $3.8 trillion. Based on the IMF's projections of US nominal GDP, these deficits will be between 0.9% and 1.1% of nominal GDP between 2026 and 2029. It is worth noting that key provisions of the 2017 tax reform bill will not expire until the end of 2025, which means that the impact of Trump's tax cuts on the deficit will be more pronounced from 2026 onwards. In any case, Trump's economic policies will make America's fiscal position and debt burden more unsustainable.
In the next six months to a year, the focus of the market is likely to be on the "soft landing" process of the US economy and the pace of interest rate cuts by the Federal Reserve. Although Trump's new policy may be expected to boost U.S. economic growth and inflation, the U.S. economy and monetary policy are likely to follow the current trend in the next six months to a year, given that key provisions of the 2017 tax reform bill will not expire until the end of 2025, and the actual implementation and effectiveness of the tariff policy will take some time.
At present, the growth and employment situation of the U.S. economy remains stable overall. GDP grew at an annualized rate of 2.8% QoQ in the third quarter, and key indicators such as the unemployment rate (4.1%) and wage growth (4% y/y) remained strong, although the number of new nonfarm payrolls in September was reduced by factors such as hurricanes. At the same time, inflationary pressures are gradually mounting, with the PCE price index exceeding expectations in Q3 and September. Even without considering the impact of Trump's New Deal, the smooth transition of the U.S. economy is already facing certain challenges.
With the upcoming November Fed meeting, the market almost unanimously expects the Fed to cut interest rates by another 25 basis points (according to CME FedWatch, the probability is 98.1%). However, the Fed is expected to take a more cautious approach to its guidance on future rate cuts and may be inclined to send a more hawkish message to adjust market expectations for the path of future rate cuts.
In the field of artificial intelligence policy, Trump advocates loose regulation
In terms of AI policy, Trump has been a supporter of promoting the development of AI technology and advocating a more relaxed regulatory environment. In February 2019, he signed an executive order launching the American Artificial Intelligence Initiative, which aims to integrate federal resources to accelerate advances in AI technology. Toward the end of his term, in December 2020, Trump signed a new executive order encouraging the federal government to adopt "trusted" AI technology, a policy that was later inherited by the Biden administration.
However, Trump is currently proposing to repeal the Biden administration's Executive Order on the Safe and Secure Development and Use of Artificial Intelligence, issued in October 2023. He believes that this order by Biden limits the innovation potential of artificial intelligence. Trump's view is that reducing unnecessary regulatory hurdles will help facilitate the development and adoption of AI technology.
In the area of immigration policy, Trump is extremely harsh
When it comes to immigration policy, Trump has taken a very tough stance. He plans to reinstate all border control measures from his previous term, including halting all illegal immigration into the interior; strengthening penalties for illegal immigrants and overstay visa holders; overturning the open borders policy pursued by the Democratic Party; cutting federal funding for cities or regions that are unwilling to cooperate with enforcement of immigration laws; and prioritizing immigration applications based on skills and aptitude.
Immigrants are now contributing significantly to U.S. population growth. According to the Congressional Budget Office (CBO), net immigration in the United States reached 2.6 million in 2022 and further increased to 3.3 million in 2023, well above the annual average of 900,000 between 2010 and 2019. The CBO expects the number of immigrants to remain around 3.3 million in 2024 before gradually slowing down. From a population growth perspective, net immigrant growth between 2020 and 2024 accounted for almost 90% of all U.S. population growth.
The impact of Trump's New Deal on the Chinese market
Trump's tariffs will have an impact not only on the United States itself, but also on other advanced economies and emerging markets. As Trump's chances of re-election increase, so does the associated external uncertainty. In the face of such an external environment, China's domestic policy is expected to respond positively. For example, the November 4-8 meeting of the Standing Committee of the National People's Congress (NPCSC) is likely to lead to additional responses.
In terms of fiscal policy, strengthening the stimulus of domestic demand will be the key. At present, the government's support measures are mainly to indirectly promote the development of the real economy by boosting market expectations and confidence. In the future, the importance of direct investment in the economy will be further highlighted, which is essential for smoothing the internal circulation of the economy. Looking ahead to 2025, the broad fiscal deficit is expected to increase by 2.5 to 3.5 trillion yuan in order to stabilize economic growth. To counter the downward pressure on external demand, fiscal spending needs to contribute at least 1 to 1.5 percentage points to economic growth. Based on a fiscal multiplier of 0.6 to 0.7, this means that in 2025, an additional 2.5 to 3.5 trillion yuan of government bonds will be issued on top of the additional government bonds issued in 2024.
In terms of monetary policy, it is equally important to maintain an accommodative stance and improve the flexibility of the RMB exchange rate. On 6 November, the RMB fell 0.77% against the USD, despite the DXY rising 1.7% to above 105. However, compared with major non-US dollar currencies such as the Japanese yen and the euro, the RMB still shows strong resilience. In the medium to long term, a modest depreciation of the renminbi will help mitigate the negative impact of U.S. tariffs on exports, while also enhancing the competitiveness of Chinese products in the global market. For exporters who rely on the U.S. market, a depreciation of the destination country's currency has a similar effect to tariff reductions, both of which can effectively transfer and create demand.
