What To Expect From A Trump Second Term—Jobs
President Trump’s number-one point on his policy plans for his second term is to “create 10 million new jobs in 10 months.” In the post-Covid-19 economy, this is likely to be a heavy lift, but it appears he is hoping to achieve this through some of the policies previously highlighted that are aimed at bringing jobs back to the United States.
Trump’s policies may have had a profound effect during his first term on the prime-age labor-force participation rate among people aged 25 to 54. This had been on a steady decline from around 84% at the time of the dot-com bubble to under 81% just before Trump took office. During his first term and up until the Covid-19-related lockdowns, this number steadily increased up to a 12-year high of over 83% (U.S. Bureau of Labor Statistics). How quickly this statistic recovers after being decimated by the effects of Covid-19, and whether the president is able to continue implementing policies that bring new people into the work force, could be important factors in the recovery, as this represents the relative amount of labor resources available for the production of goods and services in our consumption-based economy.
What To Expect From A Trump Second Term—Trade
The primary market risk from a Trump reelection likely comes from a reescalation of the trade dispute with China. The Trump administration will likely continue to be tough on China and our other primary trading partners. Even with a divided Congress, this is an area where the president has a lot of power to implement policy changes.
• China. Despite China-related trade uncertainty weighing on the business environment, even pre-Covid, the decoupling of the U.S.-China trade relationship appears to still be high on the agenda for Trump with the “Reduce our reliance on China” campaign goal. The business impact for companies with large revenue and/or supply chain exposure to China could depend on how aggressively this policy is pursued. Disputes such as Huawei’s part in global 5G networks and Chinese access to U.S. semiconductor technology may be just the beginning.
• European Union (EU). Tensions have been building recently with the EU, and in the event of a Trump win, these could come to a head over a number of issues that at present appear to be in a holding pattern pending the result of November’s election. Most notable flash points appear to be digital EU taxes on U.S. companies, retaliatory tariffs on EU products, and EU auto imports to the United States.
• U.S. companies with international employees. In the past week, Trump has said that he would impose new taxes on U.S. companies if they refuse to bring jobs back to the United States from other countries. Little detail has been provided as to how this system would work, so this uncertainty could be a headwind for companies with large international workforces and global supply chains.
What To Expect From A Trump Second Term—Initiatives And Governance
Infrastructure. “Build the World’s Greatest Infrastructure System” is the lofty goal laid out in Trump’s reelection plan. He plans to do this through $1 trillion in total infrastructure spending over 10 years, a promise made during his inaugural 2016 campaign. Funds seem to be destined for roads and bridges but also 5G wireless infrastructure and rural broadband, although some Republican members of Congress appear to be baulking at adding this expense to the already costly Covid-related stimulus.
• Covid-related fiscal stimulus. As negotiations on a second Covid-related economic stimulus relief package appear to be at a stalemate on Capitol Hill, Trump has indicated his desire to move forward by signing a number of executive orders that address some small areas of the overall package, such as a temporary payroll tax deferral for lower income taxpayers, continued federal government contribution to extended unemployment benefits—albeit at a reduced rate—and some student loan payment deferrals. Congressional negotiations are ongoing to address the much wider scope of potential stimulus that could exceed $1 trillion.
Conclusion
Our analysis suggests the 2020 presidential race will be close. If the economy continues to open up, there is more progress on a vaccine, and unprecedented stimulus continues to drive asset prices higher, Trump could surprise the pollsters again and stay in the White House. A weakening economy or stock market losses between now and Election Day would likely favor Joe Biden. Importantly, regardless of who’s ultimately declared the winner, markets historically have had no clear preference for one party or the other. Nevertheless, continuity on taxes and regulation if Trump were reelected would likely at least be market neutral with strong potential to be market positive if not offset by the impact of trade.
Ryan Detrick, CMT, is chief market strategist at LPL Financial.