Trump 2.0: A Different Ballgame

With Donald Trump now all set to take over the presidency of the United States of America, the world’s largest economy, it’s essential to temper expectations and critically evaluate what his presidency might entail. Much has changed since his first stint in 2016. The world has weathered once-in-a-lifetime pandemic that disrupted global economies, introduced geopolitical tensions, and altered monetary dynamics. Trump’s earlier policy approach, characterised by aggressive tax cuts and trade renegotiations, flourished in an environment far removed from today’s challenges.

In 2016, the US economy operated under near-normal conditions. Interest rates hovered below 2 per cent, providing a cushion for expansive fiscal policies like the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation, lauded by proponents for spurring economic growth, was estimated by the Congressional Budget Office (CBO) to increase the federal deficit by approximately USD 1.9 trillion over a decade. While critics argued that the growth effects were insufficient to offset revenue losses, the low borrowing costs of the time made such moves feasible.

Fast forward to today, and the fiscal backdrop is starkly different: interest rates exceed 4 per cent in the US, doubling the cost of servicing debt and squeezing fiscal flexibility. Further complicating matters is the US national debt, which has doubled in the last eight years. Proposing policies with the potential to inflate deficits, as Trump might, would face intense scrutiny from markets and policymakers alike. Investors need only glance across the Atlantic for a cautionary tale.

Liz Truss’s brief tenure as the British Prime Minister in 2022 serves as a stark reminder of what happens when ambitious tax cuts and increased spending lack a credible fiscal roadmap. The resultant financial chaos—plunging the pound, sparking bond market instability and driving up mortgage costs—was enough to force her resignation. It’s hard to envision Trump, a seasoned dealmaker, risking similar economic turbulence. Instead, his approach is likely to align with his trademark strategies outlined in ‘The Art of the Deal’.

Expect more of his tariff diplomacy and tough trade negotiations aimed at reshaping global trade relations to favour the United States. However, these tactics, while effective in leveraging deals, could face resistance in a world already grappling with supply chain disruptions, inflationary pressures and shifting alliances. For investors, the key takeaway is this: Don’t anchor expectations solely to campaign promises. Policy implementation in Trump 2.0 would be constrained by today’s economic realities.

While his rhetoric might echo 2016, the execution will have to adapt to a different world—one where wars in Ukraine and the Middle East, high-interest rates and strained budgets dominate the narrative. Therefore, I believe the current strengthening of the USD, which is on expectation of such policies, is likely to lose momentum in the next couple of months, if not sooner. This shift could open the door for foreign institutional investors (FIIs) to re-enter Indian equities, potentially reigniting the energy and growth in our equity markets.

This issue’s cover story delves into how Trump’s potential second term could reshape global trade and what it might mean for India. From manufacturing and IT to pharmaceuticals and energy, we analyse major sectoral implications and identify opportunities and risks for investors. As the political winds shift, staying informed and agile is more critical than ever. The ‘Age of Trump’ of 2024 cannot simply replicate that of 2016. Neither should your investment strategies. So, wait and keep a lookout for how the weather turns.

RAJESH V PADODE
Managing Director & Editor