Buckle up: Trump era brings economic uncertainty
Elections have consequences, and inaugurating a new president means policy change will soon follow. With President-elect Donald Trump promising wide-ranging tariffs, mass deportations of undocumented workers, and adjustments to both the Inflation Reduction Act and CHIPS Act, these changes could be substantial. In the first of a two-part installment, Oxford Economics’ Senior Editor Teri Robinson spoke with Chief US Economist Ryan Sweet, about the what the second Trump administration will mean for the economy and the way government functions. An edited transcript of their conversation follows.
Teri Robinson: Among the campaign promises Donald Trump has made, which is the most likely to have the greatest and perhaps most immediate impact on business and the economy?
Ryan Sweet: New administrations create a lot of uncertainty, but regulation is typically where they can have an immediate impact on businesses. Regulatory changes can be implemented fairly quickly, unlike with fiscal policy. Congress would get involved for blanket deregulation and that would get caught up in the political red tape. But under Trump, there is going to be a noticeable shift relative to President Biden. Tech is clearly going to be at the forefront of deregulation, along with energy, but the implications for the macro economy from deregulation of these two industries will be modest.
TR: What might offer clues as to how regulation may shake out during the second Trump term?
RS: Trump’s appointments to each of the major departments can quickly shape the agenda when it comes to regulation, though my attention has been mostly on the appointments that could help shape the economic agenda around fiscal policy, trade policy, and immigration. Trump’s pick for Treasury Secretary suggests that some of the more aggressive policy proposals made on the campaign trail are unlikely to come to fruition, particularly with regards to tariffs. Nominations that fly under the radar of the heads of these agencies can shape regulation when it comes to tech, and fall outside the purview of the Federal Reserve. Remember, the Fed’s biggest role is regulating the financial system and many of these activities are done by the Fed’s regional banks. For example, Trump can leave his mark on Fed supervision via appointment of the Vice Chair of Supervision, who is a governor on the Federal Reserve Board.
TR: Trump has raised eyebrows and, in some cases, alarm by promising to impose stiff tariffs on trade partners like China, Mexico and Canada. How aggressive do you think he will get, and what would be the likely impact of such tariffs?
RS: There’s nowhere to hide from tariffs, though I don’t think he’ll follow through with blanket tariffs on all goods. He will continue to pursue policies that attempt to boost manufacturing in the US. While I’m very skeptical that we’re going to bring back a lot of these manufacturing plants and jobs, we will bring back things that are particularly tied to national security. Semiconductors have been a focal point of the Biden administration, along with personal protective equipment, pharmaceuticals and BioMed. These are the things that will likely reshore—tech, too, based on some of Trump’s comments around tariffs. Tech companies might not feel the effect of Trump’s promised immigration policy, as legal immigration will be less negatively effected, but they will feel the effect of tariffs.
TR: Are there other aspects of coming changes in immigration policy business leaders should follow carefully?
RS: Proposed immigration policies are going to have far-reaching implications for the economy. Less immigration over time hurts the economy because it lowers the economy’s speed limit. The question is how quickly the economy can grow without generating inflation. To put some numbers on it right now, we’re at close to 3% annual GDP growth. Over time, with less immigration, that figure will drop down closer to 2%. And that’s the problem. The US labor force is strong because of immigration.
Tech is highly specialized and fairly immune from immigration policies focused on undocumented immigrants—unless the Trump administration really clamps down on legal immigration, reducing the number of visas or making it more difficult for those who immigrate into the US to get into tech. We’re keeping a very close eye on visa applicants because the job market is already very tight for the tech industry.
TR: If the new administration is focusing on economic growth and bringing manufacturing back on shore, is it likely to follow through on plans to significantly revise or even eliminate the CHIPS Act, which Trump recently doubled down on?
RS: The CHIPS Act clearly led to a surge in manufacturing structure investment. In 2024, real manufacturing structures investment will have been the highest in the post-World War II era. That’s going to lead into an equipment boom, which is going to help support the economy this year. One of the hard things with Trump is separating political rhetoric with what’s actually going to become policy. But we do expect him to roll back parts of the Inflation Reduction Act (IRA), like the EV tax credit.
When it comes to the CHIPS Act and the rest of the IRA, I would be surprised if he takes an axe to it. The counties and the states that have benefited most from the IRA and CHIPS Act are Republican-led. In recent months, lawmakers on both sides of the aisle have expressed support for the CHIPS Act and the benefits it brings to their communities.
TR: Could that be what curbs the incoming president’s inclination to make drastic policy changes?
RS: One of the most important things from an economic policy perspective is that the Trump administration has to continue to ride and nurture this wave of productivity growth in the US. The CHIPS Act played a small role in that. The US is noticeably outperforming other advanced economies, and one of the main reasons is productivity. Hopefully among some of his economic advisors cooler heads will prevail and prevent rolling back things that are going to hurt productivity growth.
The stock market and the economy are Trump’s barometer of policy success. He’s not going to do things to tank the market or the economy. That’s why he’s mostly going to phase in tariffs. He’s not going to want to undermine either of those because the market doesn’t like tariffs or an economy that’s struggling. In the end, that’s going to win the day, and will probably shape his economic agenda more than people think.
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