The 2024 U.S. Presidential Election: Economic Implications of Donald Trump's Return to Office!
By Alexander Nuth
Financial Times Inspired Content
The recent U.S. presidential election, resulting in Donald Trump's return to the White House, has generated remarkable anticipation and concern around potential economic shifts which will ultimately impact the world. As the former president takes office, both domestic and global markets are bracing for new policies and potential reversals of the Biden administration's economic agenda. Trump's return signals a renewed focus on his hallmark economic strategies: tax cuts, deregulation, trade protectionism, and a pro-energy policy stance, all of which are likely to have significant effects across sectors. Many critique his controversial political and economic policies, however there is also a growing attitude that Americans (as well as many others) embrace. That is, that a businessman, like President Trump, is the solution to the hindering issues that America faces – at least economical ones.
One of the most prominent issues at bay during the presidential election was immigration. With an overwhelming volume of people seeing this as a critical issue for the late election, the ‘mass deportations’ that Trump plans to carry out, along with the promised ‘closed border’, will be extortionately expensive for the U.S. federal government, the total cost mounting to around $315bn. Where Trump plans to fund this will remain a mystery with the supposed cuts in taxes, resulting in much lower government revenues. This cost would further impose an opportunity cost of the potential benefits from improved social services, such as improved education, which, if funded further, could increase human capital and hence increased innovation and productivity before the quintessential economic growth which the U.S. craves.
In addition to this, Trumps policies to immigration could lead to a loss of 4.2%-6.8% of annual GDP. The reason for this staggering figure is that this mass deportation would exasperate the current and future labour shortage. With over 90% of the immigrant population in the U.S. being of working age and many of them contributing to taxes, going towards other perks such as social security. There are also many entrepreneurs making up a proportion of the 11 million immigrants that were documented in the U.S as of 2022 whom contributed to $27bn of business in 2022.
Further to this, key industries in the U.S. would lose unfeasible amounts of workers, for example in construction, 1 in 8 workers are expected to be lost. California's agricultural sector produces one third of the countries vegetables as well as ¾ of the nation's nuts. Much of the workforce behind this is undocumented, so deportations would lead to issues sustaining their current supply of food as well as the food security of the U.S. It is also unclear whether U.S. born workers would be willing to work in these vacant roles because of the potentially harmful levels of pesticides that they will have to work with. This totally defeats one of the core purposes of Trumps campaign, which was to provide U.S. native workers with job security. The loss of this low-cost labour force would also potentially harm California's history for exporting foodstuffs, with over $24bn of foodstuffs going abroad as off 2023. So, the deportations would increase prices for many and slower production. It would also lead the country to increase the amount that it imports, causing it to be burdened with the price fluctuations that lesser developed countries, such as those in sub-Saharan Africa, experience.
During his first term, Trump enacted substantial tax cuts under the 2017 Tax Cuts and Jobs Act (TCJA), which lowered the corporate tax rate from 35% to 21% and included cuts for individual income taxes. This policy was aimed at stimulating investment, business growth, and consumer spending. In his new term, Trump has proposed further tax reductions (which may include lowering corporate tax to 15%, lowering government revenues by $460bn). He also proposes to lower taxes for middle-income families and offer potential further corporate tax incentives to bolster business expansion.
However, these tax cuts come at a fiscal cost. The TCJA was linked to increased federal deficits, and analysts predict that further tax reductions may exacerbate the U.S. debt burden, which already exceeds $33 trillion. This would in turn result in lower levels of funds to spend elsewhere in the economy because of the substantial interest that the U.S. will have to use to service this debt.
The economic impact of Trump’s tax policies could hinge on whether growth from increased investment offsets these fiscal challenges or whether deficits drive inflation and force adjustments in monetary policy.
Trump has long encouraged that deregulation is a means to boost economic productivity, especially within the manufacturing, financial, and energy sectors. He is likely to revive efforts to reduce regulations introduced under Biden, particularly those related to environmental standards, labour laws, and financial oversight.
For businesses, deregulation may lower operating costs and spur growth, especially in sectors like fossil fuels (in particular fracking), mining, and manufacturing. However, critics argue that such policies could bring environmental risks and potential instability in the financial sector. For instance, reduced financial oversight might increase short-term profits but could also lead to higher risk-taking by banks and hedge funds. The long-term impacts will depend on how markets and consumers respond to a less-regulated environment.
Trade and foreign relations
Trade policy is expected to once again become a focal point under Trump's administration. His "America First" approach may involve renegotiating trade deals, imposing tariffs, as well as creating incentives for American companies to repatriate their supply chains. Trump has been vocal about addressing trade deficits, particularly with China, which could lead to renewed trade tensions and a more aggressive stance on tariffs.
An aggressive trade policy could benefit some U.S. manufacturers but also risks escalating costs for businesses reliant on imported goods. For instance, tariffs could raise production costs for American companies and increase prices for consumers, potentially stoking inflation. This has been shown by the media as ‘passing on the tariffs to the consumers’. Moreover, if trade tensions escalate, retaliatory tariffs from countries like China and the European Union could harm U.S. exporters, complicating the economic benefits Trump aims to achieve.
Donald Trump’s return to the presidency introduces a mixture of promise and risk for the U.S. economy. While his policies aim to stimulate growth through tax cuts, deregulation, and an emphasis on energy independence, they also carry significant fiscal and geopolitical risks. For American businesses and consumers, the coming years could bring opportunities and challenges as the economy adjusts to a familiar yet evolving policy approach. Global markets and policymakers will be watching closely, as Trump's policies may reshape not only the U.S. economy but the broader global landscape in unpredictable ways.
