United States: Donald Trump Wins and Will Return to the White House

The 45^th President of the United States will also be the 47^th. Americans' frustration with the rising cost of living, the Biden administration's handling of the economy and immigration were all themes strongly promoted by Donald Trump and the Republicans. This allowed them to get the better of Vice President Kamala Harris. Tight polls suggested such an eventuality was possible. However, the economic pessimism expressed by voters clashes with the actual performance of the US economy. Ultimately, how households perceived the economy turned out to be the determining factor.

What can we expect from here? First, it must be remembered that the transfer of power will not take place until January 20, 2025. Until then, the Biden administration and current members of Congress will have to contend with issues as they arise. First, the federal government is operating on temporary funding until December 20. An agreement will be needed to avoid a shutdown before the holidays and before the change of Congress on January 3. Second, the debt ceiling should be reinstated on January 1. However, the US Treasury will be able to use special measures to continue funding the government without recourse to additional debt for several weeks after that date.

In the very short term, we can expect to see shifts in consumer confidence, along party affiliation lines, although the total indexes may not change too much. In 2016, a modest improvement was observed. If this is repeated, improved confidence could be a positive for consumption as the holiday season approaches. In 2016, business confidence indexes also improved in hopes of tax cuts and a reduction in the regulatory burden.

Our Economic Viewpoint on the issues at stake in the election and the candidates' proposals External link. highlighted that the set of policies put forward by Donald Trump could, in the long term, have a negative impact on the American and Canadian economies External link.. That said, we cannot know right now that Donald Trump will be able to quickly implement his entire program. First, the fiscal cost of many of the proposed measures is exorbitant and, given the federal government’s current fiscal situation External link., this could make many members of Congress, even Republicans, hesitate. Secondly, there are constraints related to Congress. Republicans will not hold a 60-vote super majority in the Senate, allowing Democrats to use the filibuster to limit the President's agenda. However, the government will be able to adopt fiscal measures on a piecemeal basis using the reconciliation process (as Trump did in 2018 for his tax cuts and as Biden also did in 2022 to pass the Inflation Reduction Act). In addition, the final composition of the House of Representatives is not yet known. If the Democrats can eke out a majority, it could thwart Donald Trump's legislative plans (as in the last two years of his first term). Third, the judicial process could also delay, or even limit, what the new President can actually do. This could be the case for immigration and Trump’s desire to carry out mass deportations. Finally, it remains to be seen how, and how quickly, Trump will be able to move forward with his promised tariff increases. Those against China could be put in place quickly under the pretext of national security.  Broad-based increases in tariffs on all US imports, especially from allied countries, may well take longer. Trade agreements currently in place, including the Canada-United States-Mexico Agreement (CUSMA), could also be a constraint.

The election of Donald Trump for a second term as President is likely to bring changes to our economic and financial outlook. However, it remains to be seen how far he can go with the measures he has proposed during the election campaign. Positive economic momentum is plausible in the short term. In the longer term, sharp increases in tariffs and a drop in the number of immigrants could be damaging to economic growth. Combined with further tax cuts and larger deficits, these measures could also fuel inflation and lead to higher interest rates than currently expected. However, the Federal Reserve is not expected to take these new developments into account at its monetary policy meeting on Thursday. A 25-basis point cut is still expected.