How a Trump Win in 2024 Can Impact Capital Markets

Trump’s Potential Boost for the Fossil Fuel Industry

Trump could potentially gain the most from this term by focusing on energy policies because energy independence and deregulation correlate with his base opinions and can stimulate economic growth. Additionally, strong energy policies can create jobs and boost domestic industries, enhancing his political leverage both domestically and internationally.

Trump is well known for his skepticism about global warming (see AllinAllSpace article on global warming skeptics’ arguments) and can continue his pro-fossil policy from his first term and leverage it by encouraging oil fracking, rolling back environmental regulations, providing tax incentives, and increasing access to federal lands for drilling. With that said, from a market-wise perspective, it can lead to short-term gains for the fossil fuel sector, but long-term effects are uncertain as public opinion plays a crucial role.

Source unsplash.com

What’s more, Trump’s reaction to the turmoil in the Middle East, particularly the ongoing conflict between Israel and Palestine, could be a major catalyst for a further increase in energy supply shortage.

Trade Relations with China and Tariff Policies

Another critical aspect is Trump’s approach to trade, especially with China. There is speculation that Trump might revive the trade war with China, imposing a 10% tariff on worldwide imports and increasing tariffs up to 60% on goods, specifically Chinese imports. This is in addition to existing taxes from his previous term that Biden did not cancel.

The US acknowledges the threat from China’s manufacturing growth, especially in cars, arms, and chips. With a low-cost workforce and loose regulations, China continues to be a fierce competitor. Critics argue that these methods might not work as intended. Despite tariffs, the trade deficit keeps growing. Cheaper imports from other countries, like Vietnam, offset much of the tariff’s effects.

A Trump Win Has a Deflationary Effect

Market reactions to Trump’s increased tariffs often center around fears of inflation. However, the import share is only 15.59% of the total GDP (as of 2022), and the US economy operates relatively independently. Conversely, Trump’s policies could have a deflationary effect by boosting fossil fuel production, potentially lowering energy prices in the US.

In the chart below, it is evident that the share of imports relative to the total GDP ranged between 10% and 18%, highlighting the USA economy’s resilience and relative immunity to external pressures.

Source statista.com

Summary

As the 2024 elections approach, the potential implications of a second term for Donald Trump are gaining attention. Following a recent debate between Biden and Trump, Trump’s chances of winning have increased significantly, with some surveys showing a record-high lead for a Trump win, largely driven by concerns over Biden’s age.

From our analysis, the energy sector is likely to see significant changes under Trump, with policies favoring fossil fuel production and fracking while potentially reducing green market subsidies. This could lead to short-term gains for the fossil fuel industry, but long-term uncertainties remain due to shifting public opinion.

Moreover, Trump’s trade policies are also expected to be aggressive, particularly towards China, with potential increases in tariffs on imports. Critics argue that such measures may not be effective in reducing the trade deficit and could lead to inflation concerns, though the overall impact on the US economy might be mitigated by its relative independence.

Overall, as evident from Trump’s first term, the unpredictable nature of a second Trump term is likely to be no different than the first. Since Trump entered his last presidential term, Trump’s administration policy might be more aggressive, which could lead to more volatile financial markets.