President Trump

President Donald Trump

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<p class="has-drop-cap">Alongside mass deportations, Trump’s campaign pinpointed tax cuts, deregulation, and raising tariffs as key cornerstones of the next administration. The President-elect’s pick for the US Treasury Secretary, Scott Bessent, indicates that Trump intends to carry over business-friendly initiatives from his 1st term.</p>
<p>Bessent is not only a lifelong Wall Street investor, but his co-founding of Key Square Capital Management came after working under George Soros for his Soros Fund Management. The fact that Trump would pick a Democratic donor nominee and supporter of liberal causes alongside previous Clinton and Obama admins speaks to Trump’s prioritization of economics over ideology.</p>
<p>But how will Trump’s economic priorities most likely manifest?</p>
<h3 id="carryover-from-trump-s-1st-term">Carryover from Trump’s 1st Term</h3>
<p>In his first term, between 2017 and 2021, President Donald Trump set the tone with the Tax Cuts and Jobs Act (TCJA) at the end of 2017. Not only did TCJA reduce the top marginal tax rate from 39.6% to 37% for individuals, but the corporate tax rate went down from 35% to 21%.&nbsp;</p>
<p>To offset the budget revenue hit, TCJA removed and lowered some tax exemptions. One of them is the state and local tax (SALT), having limited its deduction to $10,000. This time around, Trump plans to eliminate that $10k limit.</p>
<p>Likewise, Trump intends to eliminate federal income tax on Social Security benefits, per his <a aria-label=" (opens in a new tab)" href="https://truthsocial.com/@realDonaldTrump/posts/112881452914352595" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">Truth</a><a href="https://truthsocial.com/@realDonaldTrump/posts/112881452914352595" target="_blank" aria-label=" (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link"> </a><a aria-label=" (opens in a new tab)" href="https://truthsocial.com/@realDonaldTrump/posts/112881452914352595" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">Social post</a> at the end of July. The same would apply to overtime pay and tips. The latter promise was so popular that VP Harris promptly copied the proposal during the campaign.&nbsp;</p>
<p>However, the TCJA was already estimated to hit the federal budget at <a aria-label=" (opens in a new tab)" href="https://taxpolicycenter.org/sites/default/files/briefing-book/how_did_the_tcja_affect_the_federal_budget_outlook_1.pdf" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">$2.3 trillion</a> over the first decade, according to the Tax Policy Center. A tax cut expansion would undoubtedly widen that hole significantly. The Committee for a Responsible Federal Budget indicated this would increase the national debt between $1.65 and $15.55 trillion.</p>
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 <figure class="aligncenter size-full"><img decoding="async" width="988" height="614" src="https://tokenist.com/wp-content/uploads/2024/12/crfbtrump.png" alt="" class="wp-image-239703" srcset="https://tokenist.com/wp-content/uploads/2024/12/crfbtrump.png 988w, https://tokenist.com/wp-content/uploads/2024/12/crfbtrump-300x186.png 300w, https://tokenist.com/wp-content/uploads/2024/12/crfbtrump-768x477.png 768w, https://tokenist.com/wp-content/uploads/2024/12/crfbtrump-650x404.png 650w" sizes="(max-width: 988px) 100vw, 988px">
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   Image credit: Committee for a Responsible Federal Budget (CRFB)
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<p>From these wide-ranging figures, it is clear that Trump’s 2nd term will prioritize tariffs as the main revenue driver. Although tariffs are a flexible monetary tool, do they also come at a cost?</p>
<h3 id="return-to-tariffs">Return to Tariffs</h3>
<p>As a tax levied on imported goods, it is safe to say that tariffs funded the US from their introduction in 1789 to the introduction of federal income tax in 1913, accounting for ~90% of federal revenue. In the modern age of central banking, dominated by the Federal Reserve and USD as the world’s reserve currency, it is also fair to say that the US is in a much stronger position to impose tariffs.</p>
<p><a href="https://tokenist.com/trumps-25-tariff-on-mexico-and-canada-hits-general-motors-stock-hard/" rel="noopener noreferrer nofollow" class="deco-link">Canada and Mexico</a> are to be the first tariff targets up to 25% on all products, which could affect automakers like General Motors. GM has built up its manufacturing facilities in both nations, pursuing lower labor costs in Mexico. On the other hand, Canada’s ample incentives for the sustainable automotive sector spurred GM to invest $2 billion in Ontario’s CAMI Assembly Plant for electric vehicles.</p>
<p>China should receive 10% extra tariffs, on top of the previously hinted flat <a href="https://www.washingtonpost.com/business/2024/01/27/trump-china-trade-war/" target="_blank" aria-label=" (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">60% tariff increase</a>. This is less controversial as both Trump’s 1st admin and current Biden admin already imposed heavy tariffs on Chinese goods. In fact, this may be the main reason why Elon Musk jumped on the Trump train so eagerly. Against cheap Chinese EVs, another round of tariffs would <a href="https://tokenist.com/2024-was-a-bumpy-ride-for-tesla-stock-tariff-driven-2025-ahead/" rel="noopener noreferrer nofollow" class="deco-link">boost Tesla’s bottom line</a>.&nbsp;</p>
<p>The EU should also expect tariffs. Trump’s 1st admin imposed 25% tariffs on steel and 10% on aluminum imports. They could easily be reinstated considering that the Biden admin merely suspended them. Given the trade deficit of <a href="https://www.bis.doc.gov/index.php/documents/technology-evaluation/ote-data-portal/country-analysis/3407-2022-statistical-analysis-of-us-trade-with-germany/file#:~:text=In%202022%2C%203.5%25%20of%20total,global%20exports%20of%20those%20commodities." target="_blank" aria-label=" (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">$74.1 billion</a> between the US and Germany in 2022, there is certainly space for a new set of tariffs.</p>
<p>In the meantime, the bombing of the Nord Stream pipelines, combined with the EU’s focus on renewables, severely undermined the Eurozone economy, <a aria-label=" (opens in a new tab)" href="https://www.pmi.spglobal.com/Public/Home/PressRelease/441696c1f52840de98642893414beed0" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">ending up in a continuous manufacturing recession</a>. Such geostrategic positioning gives great leverage to the US in shaping up its protectionist, tariff-driven policies.</p>
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<h3 id="how-would-tariffs-affect-us-consumers">How Would Tariffs Affect US Consumers?</h3>
<p>In May’s Columbia University <a href="https://deweinst.github.io/weinstein_website/AGKW_Manuscript.pdf" target="_blank" aria-label=" (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">study</a> titled <em>Trade Protection, Stock-Market Returns, and</em> <em>Welfare</em>, the paper concluded that US-China tariffs had a 3% negative effect on US welfare. The latter is a measure of businesses’ cash flows in the US, which trickle down to end-consumer.</p>
<p>A Harvard University <a href="https://economics.mit.edu/sites/default/files/2024-01/Help%20for%20the%20Heartland%20-%20The%20Employment%20and%20Electoral%20Effects%20of%20the%20Trump%20Tariffs%20in%20the%20United%20States.pdf" target="_blank" aria-label=" (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">study</a> in January found that the same US-China trade war resulted in “neither raised nor lowered US employment in newly-protected sectors”. In other words, Trump’s plan to reindustrialize the US would take time beyond his 2nd term.</p>
<p>According to J.P. Morgan Global Economics, the proposed new tariffs, 25% on Canada and Mexico plus 10% on China, would exert a $193 billion cost and raise inflation by 1%.&nbsp;</p>
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   Image credit: J.P. Morgan Global Economics
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<p>In turn, this could make the Federal Reserve revert from its interest rate easing course. However, as this would likely harm the stock market, <a href="https://tokenist.com/how-inflation-will-likely-play-out-under-a-2nd-trump-term/" rel="noopener noreferrer nofollow" class="deco-link">which President Trump favors</a>, it is more likely that tariffs will be leveraged as a negotiation tool to benefit the US.&nbsp;</p>
<p>After all, in an intertwined global economy, tariffs can only be successful without other parties retaliating. In a no-retaliation scenario, the potential impact on inflation should remain under 1.5%, per Peterson Institute for International Economics.</p>
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 <figure class="aligncenter size-large"><img decoding="async" width="1024" height="587" src="https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation-1024x587.png" alt="" class="wp-image-239677" srcset="https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation-1024x587.png 1024w, https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation-300x172.png 300w, https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation-768x440.png 768w, https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation-650x373.png 650w, https://tokenist.com/wp-content/uploads/2024/12/tradewarretaliation.png 1217w" sizes="(max-width: 1024px) 100vw, 1024px">
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   Image credit: J.P. Morgan via Peterson Institute for International Economics
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<p>President Trump can easily tap into the USD dominance and countries’ dollar-denominated debt to make it a no-retaliation scenario. This is on top of US’ geopolitical dominance that determines global trade routes. The fact that the Indian rupee (BRICS nation) is already at a new all-time low testifies to this strong negotiating position.</p> <iframe src="https://tokenist.substack.com/embed" width="100%" height="320" style="border:1px solid #EEE; background:white;" frameborder="0" scrolling="no"></iframe>
<p><strong><em>Do you think the US should use its hegemony to the maximum effect? Let us know in the comments below.</em></strong></p>
<p><em>Disclaimer: The author does not hold or have a position in any securities discussed in the article.</em></p>
<p>The post <a rel="noopener noreferrer nofollow" href="https://tokenist.com/trumps-tariff-tightrope-would-americans-benefit/">Trump’s Tariff Tightrope: Would Americans Benefit?</a> appeared first on <a rel="noopener noreferrer nofollow" href="https://tokenist.com">Tokenist</a>.</p>

Trump’s Tariff Tightrope: Would Americans Benefit?

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