Authors: Zhao Wei, Zhao Yu, Chen Dafei (Zhao Wei is the Chief Economist of Guojin Securities and a director of the China Chief Economist Forum)
summary
Trump leads Biden in the national and swing state polls. In the era of Trump 2.0, how will the policy mix be different? On the one hand, it may revoke important measures such as climate, new energy, and immigration introduced during Biden's presidency, and on the other hand, it may promote government reforms, expand tariff measures, and focus on supporting the U.S. auto industry.
Trump 2.0: Policy Mix, What's the Difference?
In the Trump 1.0 era, the rate of fulfillment of campaign promises was low, but the rate of fulfillment in the field of trade was high. In the 2016 election, Trump made nearly 100 promises, but only 23 percent of them were kept, lower than Obama's 47 percent and Biden's 27 percent. Most of Trump's campaign promises in the economic sphere have not been fulfilled, but he has achieved the highest rate in the trade area, including the withdrawal from the TPP, the renegotiation of the North American Free Trade Agreement, and the imposition of tariffs.
Trump's main policies during his presidency include tax cuts, deregulation, the development of traditional energy sources, and trade frictions. The Tax Cuts and Jobs Act, Trump's signature piece of legislation, lowered the corporate income tax rate from 35 percent to 21 percent. Trump has loosened regulations on small and medium-sized banks, emphasized US energy independence, encouraged traditional fossil fuels, repealed a number of environmental regulations, relaxed environmental scrutiny of large infrastructure projects, withdrew from the Paris Climate Agreement, and imposed punitive tariffs on a global scale.
Trump prefers fiscal and monetary easing, and breaks with tradition to openly put pressure on the Fed during his tenure. Despite Republicans' adversaries of limiting government spending, the U.S. deficit rate widened to 15% in 2020 due to tax cuts and massive fiscal stimulus, thanks to tax cuts and massive fiscal stimulus. On the monetary front, from March 2017 to the end of 2018, the Fed raised interest rates seven times and cut interest rates three times in 2019.
Biden has a higher rate of fulfilling his campaign promises in the area of climate and environment. In the 2020 election, Biden put forward a platform of "Build Back Better", focusing on issues such as health care, the economy, justice, climate and energy, and focusing on "anti-Trumpism". Biden has been the best at delivering on his campaign promises on climate, with a 60% fulfillment rate, including measures to reverse Trump's environmental backlash and expand clean energy investment.
The main policy path during Biden's presidency is to implement "Bidennomics" through three major bills. The total expenditure of the three bills is about 1.2 trillion yuan, of which the scale of the "infrastructure bill" is about 550 billion US dollars, which is mainly invested in infrastructure fields such as roads, bridges, and railways. The CHIPS Act is $250 billion and is mainly invested in the semiconductor sector. The Inflation Reduction Act (IRA) is about $433 billion, mainly in clean energy and the environment.
Trump 2.0's policy mix focuses on domestic reform and foreign trade, respectively. As of March 2024, Trump has unveiled 46 preliminary policy platforms. In the 2016 election, Trump's campaign issues focused on the economy, immigration, and other issues, and economic issues were particularly important. But this year, Trump's four major policies are: education, government reform, social security, and trade. The domestic economy remains important, but it has been reduced in weight, perhaps to circumvent the reality that the U.S. economy has been more resilient during Biden's presidency.
If Trump is elected, he may first reverse important policies introduced during Biden's presidency. Trump may withdraw from the Paris Climate Agreement again, revoke Biden's environmental regulations, speed up the granting of oil and gas drilling permits, and restrict the development of new energy. On immigration, Trump may reimpose stricter immigration controls or legislate to ban the children of illegal immigrants from obtaining citizenship. On the diplomatic front, Trump may cancel aid to Ukraine and seek to end the Russia-Ukraine conflict as soon as possible.
In terms of core issues, Trump may push for government reforms, expand tariff measures, and focus on supporting the auto industry. Trump has repeatedly mentioned breaking the "deep state", but it will be difficult. In the area of trade, Trump has made it clear that he will enact the Trump Reciprocal Trade Act, considering imposing a "universal benchmark tariff" on all U.S. imports, but does not mention specific tax rates and product ranges, and proposing to get rid of China's dependence, but does not explicitly mention a 60% tariff on Chinese products.
Risk Warning
The escalation of geopolitical conflicts, the Federal Reserve raised the level of the long-term neutral interest rate, and the marginal contraction of financial conditions
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The main body of the report
In this year's election, Trump is leading both overall and swing states. If Trump is re-elected, on the one hand, he may reverse the important policies such as climate and immigration introduced during Biden's presidency, and on the other hand, on the core issues, Trump may promote government reforms, expand tariff measures, and focus on supporting the U.S. auto industry.
1. Hot Thoughts: If Trump comes to power, what policies will he adopt?
(1) What were the characteristics of Trump's first term?
During his first term, Trump had a high rate of fulfillment of his commitments in the area of trade. In the 2016 election, Trump ran for the first time and put forward a campaign platform of "Make America Great Again." In areas such as trade, immigration, and the economy, Trump made nearly 100 campaign promises. Overall, Trump's campaign promises have been worse than Biden and Obama's, with 47 percent of Obama's promises fulfilled compared to 27 percent for Biden and 23 percent for Trump. Most of Trump's campaign promises in the economic area have not been fulfilled, but the rate of fulfillment in the trade area has been higher, including withdrawing from the Trans-Pacific Partnership (TPP), renegotiating the North American Free Trade Agreement, and imposing tariffs on imported goods, all of which have been successfully implemented.
Trump's main policies during his presidency include tax cuts, deregulation, the development of traditional energy sources, and trade frictions. The Tax Cuts and Jobs Act, Trump's signature piece of legislation, reduced the top personal income tax rate from 39.6 percent to 37 percent and the corporate income tax rate from 35 percent to 21 percent. On the regulatory front, Trump has drastically loosened government regulations, introduced significantly fewer regulations in his first two years in office than his previous two presidents, relaxed regulatory requirements for small and medium-sized banks in the financial sector (banks with assets of less than $250 billion), and waived the 2010 Dodd-Frank Act on small community banks. On the energy front, Trump emphasized energy independence, encouraged traditional fossil fuels, repealed environmental regulations such as the Clean Water Rule, relaxed environmental scrutiny of infrastructure projects, and withdrew from the Paris Climate Agreement. In the field of trade, Trump has imposed punitive tariffs on a global scale, and the main tariff instruments are still being implemented by the Biden administration.
During Trump's presidency, he favored fiscal and monetary easing, breaking the tradition of openly pressuring the Fed. Although the Republican Party advocates limiting government spending, the US deficit ratio has hit a new high under Trump due to tax cuts and massive fiscal stimulus. Even before 2020, the deficit rate was on an upward trend, rising from 3.5% to 4.6% in 2017-2019 and widening further to 15% in 2020. On the monetary front, from March 2017 to the end of 2018, the Fed raised interest rates seven times and cut rates three times throughout 2019. During his tenure, Trump broke with tradition and repeatedly publicly pressured the Fed to cut interest rates as soon as possible.
(2) What policies did Biden adopt during his presidency and what are the differences?
Biden has a high rate of fulfillment of campaign promises in the field of climate and environment. In the 2020 election, Biden put forward a campaign platform of "building back a better future", focusing on medical protection, economy, justice, climate and energy, and focusing on "anti-Trumpism". Biden has been the best at delivering on his campaign promises in the area of climate and the environment, with a 60% fulfillment rate, including measures to reverse Trump's environmental backsliding, expand investment in new energy, and provide clean energy subsidies to poor communities. But on the other hand, Biden's policies in the economic and educational fields have been poorly implemented, and the minimum wage increase, housing subsidies, end pay discrimination, and free community colleges promised during the election campaign have not yet been realized.
The main policy path during Biden's presidency is to implement "Bidennomics" through three major bills. After Biden took office, he first implemented "anti-Trumpism", immediately returned to the Paris Climate Agreement, rejoined the WHO, and overturned Trump's environmental regulations. From 2021 to 2022, the Biden administration-led "Infrastructure Act", "CHIPS Act" and "Inflation Reduction Act" were passed successively. The total expenditure of the three bills is about 1.2 trillion yuan, of which the "Infrastructure Bill" expenditure is about 550 billion US dollars, mainly invested in infrastructure areas such as roads, bridges, railways, broadband, and power facilities. The CHIPS Act spends $250 billion, mainly in the semiconductor sector. The Inflation Reduction Act (IRA) spends about $433 billion, mainly in clean energy and the environment.
Biden's presidency favored fiscal easing, following the president's tradition of non-intervention in monetary policy. In terms of finance, in the early days of Biden's presidency, the U.S. fiscal deficit has begun to fall, but with the three major bills coming into effect in 2022, the fiscal deficit has expanded again, and the deficit rate will rebound from 5.5% to 6.3% in 2023, and the fiscal deficit will rebound from $1.4 trillion to $1.7 trillion, making the United States return to fiscal easing. On the monetary front, the Federal Reserve has raised interest rates 11 times since March 2022 to combat inflation, and the 10-year Treasury interest rate has reached its highest level since the financial crisis. Biden follows the president's tradition of non-intervention in the Federal Reserve, in 2021, Biden nominated Powell for a second term as chairman of the Federal Reserve, and in the media, Biden also publicly expressed his respect for the independence of the Federal Reserve, but this move may be related to the Fed's anti-inflation behavior and Biden's interests are aligned.
(3) If Trump is elected, what new policies may he adopt?
The focus of Trump's policy platform this year may shift to government reform, social security, education and foreign trade. Presidential candidates' platforms are often formally presented after the National Convention in July and August, but so far (March 2024), Trump has released 46 preliminary policy platforms on his campaign website, covering various areas such as the economy, employment, trade, and immigration. When he first ran for election in 2016, Trump's policy platform focused on the economy, immigration, and government processes, with economic issues being particularly important. However, this year, the preliminary policy platform shows that Trump's four major policy issues are: education, government reform, social security, trade, and the domestic economy and employment are still important, but the weight has been reduced, which may be to avoid the reality that the US economy is more resilient during Biden's tenure.
If Trump is elected, he may first reverse important policy measures introduced during Biden's presidency. In the field of climate and energy, Trump may withdraw from the Paris Climate Agreement again, ban ESG investment, revoke environmental protection regulations implemented by the Biden administration, accelerate the granting of oil and gas drilling licenses, encourage the production of old energy, and restrict the development of new energy. However, at present, the scale of new energy investment represented by charging piles in the United States has expanded significantly, and the number of charging piles in 2024 has more than tripled that of 2016, and the difficulty of restricting the development of new energy has increased. On immigration, Trump may re-impose stricter immigration control measures, or legislate to prohibit the children of illegal immigrants from obtaining citizenship and prohibiting illegal immigrants from obtaining welfare protections. On the diplomatic front, Trump may cancel aid to Ukraine and seek to end the Russia-Ukraine conflict as soon as possible.
On the core issue, if Trump is elected, he may push for government reform, expand tariff measures, and focus on supporting the auto industry. In terms of government reform, Trump has repeatedly mentioned breaking down the "deep state", cracking down on government bureaucratic corruption, and establishing an independent audit system. In the area of trade, Trump has made it clear that he will enact the Trump Reciprocal Trade Act, which would give the president the power to impose reciprocal tariffs on foreign goods, consider imposing "universal benchmark tariffs" on all U.S. imports, but do not mention specific tax rates and product ranges, and propose to get rid of China's dependence, but do not explicitly mention imposing 60% tariffs on Chinese products. On the economic front, Trump has placed particular emphasis on "saving the auto industry", especially the development of traditional fuel vehicles and the removal of vehicle exhaust emission restrictions. At this stage, the United States imposes an average tariff rate of 19.3% on Chinese exports, of which 25% is for auto parts.
Risk Warning
1. Escalation of geopolitical conflicts. The conflict between Russia and Ukraine has not yet ended, and the Palestinian-Israeli conflict has made waves again. Geopolitical conflicts could exacerbate crude oil price volatility and disrupt the global "disflation" process and "soft landing" expectations.
2. The Federal Reserve raised the level of long-term neutral interest rates. The Fed's summary of economic projections shows the long-term neutral rate at 2.5%, but the distribution of the dot plot has begun to shift to the right, and it only takes 2 members to revise upwards to change the median estimate.
3. Marginal contraction of financial conditions. Since October 2023, financial conditions have eased sharply with the sharp decline in the 10Y Treasury rate, but the recent changes in the form of the economy and inflation may lead to a marginal tightening of financial conditions.