Trump 2.0: spectre at the Thanksgiving feast

American Thanksgiving celebrates the blessings of the past year, but it also inaugurates annual black Friday bargain-hunting and political arguments over dinner. Tensions will have been high at many Thanksgiving gatherings this year, it being the last before 2024 election. This election will also be the third to include divisive former-President Donald Trump, who seeks to be the first man since Grover Cleveland to re-assume the presidency after having lost re-election.

While Trump’s nomination as Republican nominee is not certain, and Biden may not seek re-election, 2024 could repeat the 2020 contest. Consequently, investors need to understand both how Trump’s re-election could happen, and the priorities for a new Trump administration if it comes.

In with a shot: Trump’s chances in 2024

Trump’s return at first seems unlikely. He left office amid a cloud of acrimony over the events of January 6 2021, and he remains unpopular in national surveys. But he remains competitive for three reasons.

First is the economy. With consumers facing the pinch from high inflation and recession on the cards for 2024, Trump could evoke memories of his time in office (when the consumer was more buoyant) and contrast with the straitened experience of life under Biden.

Secondly, concerns around Biden’s age have weighed on support. In one survey, some three-quarters of respondents said that Biden did not have the sharpness and stamina to be president. While Trump, at 77, is only four years Biden’s junior, his age is less of a concern. Only 47% of voters say that Trump is too old to be president, versus Biden’s 77%.

Lastly, the electoral college system (whereby state ballots select the president) also favours Trump, especially in a close election. With Democrats concentrated in bastions like California and New York, and Republicans more distributed in swing states, Biden needs to achieve a larger share of the national vote to secure victory.

Doubling down: the priorities for Trump 2.0

If Trump does win in 2024, what can markets expect? A new Trump premiership would have three focuses.

Firstly, on trade. Trump 2.0 would continue the trade rows (with China and others) that defined his first term. We can expect rounds of tariffs and trade restrictions to be imposed with an eye to securing deals favourable to the US in other areas, such as migration control or military spending.

Secondly, fiscal policy would loosen further under a second Trump term. The tax cuts passed in 2017 would be made permanent, with potentially further subsidies for firms struggling from foreign competition. While these measures might be balanced by cuts to Biden’s Inflation Reduction Act, fiscal hawks face a meagre offering on election day.

Lastly, Trump could tighten his grip on government decision-making, making officials easier to fire and expanding the remit of Federal agencies (particularly the immigration bureau) to enforce controversial legislation. This would trigger battles with the courts, raise concerns about US democratic institutions and make policymaking more erratic.

Bracing for a wild ride…

For investors, the prospect of returning to a Trump presidency offers mixed memories. His fiscal package brought solid gains in US equities, but the incessant commentary, on both politics and the Federal Reserve (Fed), was a source of persistent volatility. The circumstances of his arrival are also different. With inflation fighting firmly on the Fed’s agenda, markets could react badly to fresh stimulus that obstructs inflation from returning to target.

Other risk factors also interlink with a Trump presidency. Tensions over Russia-Ukraine, Israel-Gaza and Taiwan will likely persist well into the next presidential term, and where the ‘Trump treatment’ might do much more harm than good.

Trump remains some way from the White House. It is just under a year to go until election day, no ballot has been cast in the upcoming primaries, and plenty could still happen. But Trump’s return as President cannot be discounted, and will likely deepen the partisanship in American institutions. Regardless of the election’s outcome, there will remain plenty to argue about next Thanksgiving.