Global industry braces for mixed impact from Trumponomics’ triple whammy
While the exact nature of President-elect Donald Trump’s industrial policies are uncertain, our newly-minted forecasts point to three significant policy shifts that will deliver a mixed blessing for US companies but will be overwhelmingly negative for the global industrial sector.
1. Expansionary fiscal policy
Expansionary fiscal policy will boost consumer and investor sentiment in the near term. The biggest boost to GDP growth over the next few years comes via the extension of the 2017 personal and business tax cuts. We have raised our capital expenditure forecast over the next two years as a result.
While most US industrial sectors are expected to benefit from these policies, clear winners in the short-term include:
- Capital goods sectors: Machinery, electrical equipment, electronics, and transportation equipment should all benefit from higher domestic investment.
- Intermediate goods sectors: Stronger downstream demand should benefit intermediate goods such as chemicals and basic metals.
- Construction: Investment in non-residential buildings, especially factories in strategic sectors, should boost construction in the near term.
- IT & tech services: Lower corporate tax rates and more stability in the tax regime should boost sector investment.
Over time, however, the increased fiscal stimulus adds to inflationary pressures, and we have slowed the pace of interest rate cuts as a result.
2. New tariffs
There are large uncertainties over the nature of new tariffs, but all of Trump’s rhetoric suggests that this is a priority for a second administration. We assume that the US enacts a 30% blanket tariff on all Chinese imports and targeted tariffs against other large trading partners, and that trade partners place retaliatory tariffs on imports from the US in turn. The tariffs are gradually implemented through the course of 2026, with the impact on the US economy not fully felt until the end of Trump’s second term.
On the one hand, tariffs will help shield US industry from global competition, benefiting domestic production. However, they will also the raise cost of imported intermediate goods and will lead to less efficient global supply chains, trade, and knowledge transfer.
Key sectors impacted sectors include:
- Electronics: Large investments in recent years have raised the sector’s productive capacity, giving the US a comparative advantage in a tariff shock. However, the sector is heavily traded and dependent on efficient global supply chains, so increased domestic production could come at the expense of productivity and profitability for some firms. For a detailed analysis on how Trump 2.0 policies would influence the electronics sector, click here to read our blog.
- Electrical equipment: Similar to electronic goods, the sector has seen strong investment in recent years. While Trump has threatened to repeal the Inflation Reduction Act (IRA), putting new sector investment at risk, we think a full repeal will be politically untenable for several Republicans, so it is only likely to be scaled back at the margins.
- Automotive: New tariffs should protect domestic production from foreign competition, but at the expense of higher input costs. Some roll-back of EV tax credits in the IRA will shift production to more ICE vehicles.
3. Immigration restrictions
We assume that net migration will fall from an annual pace of 1.1 million to 800,000 per year. Lower net migration levels will constrain the labor supply, with the impact building over time. This will create labor shortages and push up wages. The most heavily impacted sectors are labor-intensive sectors including:
- Construction: Research from Goldman Sachs suggests that about 26% of the labor force is foreign-born and 13% is undocumented. While not included in our baseline forecast, mass deportations would therefore be a downside risk to the sector. For a detailed analysis on how Trump 2.0 policies would influence the construction sector, click here to read our blog.
- Agriculture: About a third of US agricultural workers are foreign-born.
While probably less of a risk, restrictions on skilled immigration could exacerbate skills shortages in knowledge-intensive sectors such as tech and semiconductor manufacturing.
Global impact
Outside of the US, the impact of a Trump presidency will be decidedly negative. The impact of blanket tariffs on China and sector-targeted tariffs on several allies will reduce trade, leading to lower production, less efficient global supply chains, and a loss of knowledge transfer. This is particularly important in industries with globally integrated supply chains such as electronics. Towards the end of the decade, we have downgraded our forecast for global industrial production in most sectors (see chart).
In the near term, the fiscal stimulus measures enacted by a second Trump administration will provide a boost to global industry. Stronger growth in the US will prop up export demand for most of its important trade partners, and fiscal and monetary stimulus in China provides an additional fillip. In the US, the medium-term impact of President-elect Trump’s policies varies significantly across sectors: high value goods are protected from foreign competition, but tariffs, higher prices, and increased borrowed will raise input prices for producers. Outside of the US, the impact on global industrial production is decidedly negative due to lower export demand and less efficient global supply chains.
To learn more about our December industry forecasts and how we factor in the influence of Trump 2.0 policies, download our report.
To discover how we can support you to navigate uncertainty with confidence, request a free trial.
Tags:
Related Reports
Trump policies provide tailwinds for industries, with exceptions in Japan
We expect the impact of Trump policies will be a net positive for Japan. The boost from higher import demand due to expansionary fiscal policies will likely overwhelm the adverse impact of targeted tariffs on Japan. The US is Japan's biggest goods export destination, accounting for 20% of total. Most traded items such as machinery and automotives are set to benefit from higher investment demand and consumer spending.
Find Out More
Japan expects mixed impacts from Trump’s second presidency
We've adopted our "limited Trump scenario" as our baseline forecast for Japan. We now assume that the US will impose targeted tariffs on Japan's exports, among several other economies. We think these measures will have a limited impact on overall growth, but globally higher trade barriers are likely to hit Japanese manufacturers' profitability and financial markets. In addition, there is a non-negligible risk that Trump could implement even stricter tariffs.
Find Out More
Trump policies could be a circuit breaker in global electronics supply chain
Electronics and high-tech manufacturing are highly exposed to the rising risk of a major hit to their profits from protectionist policies under the incoming Trump administration.
Find Out More
Rough road ahead for US Construction under Trump 2.0
The construction sector has experienced wild ups and downs in recent years, a trend that looks set to continue under the next US administration.
Find Out More