If the Republican majority in the House of Representatives is confirmed, we would be facing an overwhelming Republican wave, with Trump’s presidency and control of the Senate and the House of Representatives by the same party, being the first time that this situation has occurred since Ronald Reagan.
This total control over the executive branch (Government) and the legislative branch (Congress) is only guaranteed for two years. In 2026 elections will take place. mid termwhere a third of the Senate and the entire House of Representatives are elected. Therefore, expect an avalanche of legislative measures to implement the Republican agenda over these next two years. After said period, Neither the president nor the Republican party will be certain of having the support of Congress for their new measures.
According to messages released in recent weeks, the priorities of the new Trump Administration will focus on: extending the tax cuts that expire at the end of 2025 and introduce new tax cuts, especially for families; curb illegal immigration; and relax the regulation of numerous sectors such as oil, financial, automobiles and telecos; Investments in nuclear energy will be revitalized and accelerated, while current subsidies for renewable energy could be limited.
One of the Republican Party’s proposals is the approval of the Reciprocal Tariff Act, which seeks to apply to the United States’ trading partners at least the same tariffs that American products exported to those countries bear. According to the analysis that accompanies this proposal, the average tariffs supported US goods are 6%while the average tariffs applied to imported products are 3%. In any case, the imposition of higher tariffs on certain products, such as European cars, is a given.
The aggressiveness of the tariffs on China will go much further, up to 60%. Chinese investments in overproduction of numerous geopolitically relevant products and materials, such as steel, are considered to pose a security risk to the United States. The Republican Party believes that the new Administration cannot allow China to carry out dumping in the sale of its steel, causing the closure of steel factories around the world and in the United States, when steel is essential for the country’s security, especially for the military industry.
The demand for greater defense spending from NATO’s European partners is warranted. 2% of GDP in defense spending for NATO members becomes an inexcusable minimum, with the objective being higher than 3%.
The first reaction of the different financial assets reflects what investors are discounting:
– The strong initial rise in the US stock markets. It discounts fewer taxes, less regulation in sectors and a more business-friendly policy. In fact, the Russell 2000 index, which includes medium and small companies, rose more than 5% the first day after the election.
– The interest rates on 10- and 30-year US Treasury bonds have experienced strong upward spikes, up to 4.4% and 4.6%, respectively. Behind this movement is a larger public deficit, as tax cuts and spending increases are approved without opposition in Congress, and a higher inflation forecast is due to the discounted imposition of 60% tariffs on China and the rest of the country. world of a significantly lower amount, as well as measures aimed at prioritizing local production over imports (America First).
– The dollar has strengthened substantially. The explanation for this movement lies in the anticipation of less room for maneuver on the part of the Federal Reserve to lower interest rates by the amount that was discounted until before the elections. The foreseeable higher inflation will limit the intensity and number of interest rate cuts.
– Bitcoin reaches all-time highs. Last July, Trump said at the annual bitcoin conference in Nashville that the US should have a strategic bitcoin reserve. To this end, he considered that the seized bitcoins should not be sold, as other countries such as Germany or the Biden Administration itself have done.
– Although gold initially fell after the election result, it remains at levels close to historical highs. The inevitable increase in public debt and the foreseeable monetization of part of said debt support its price.
– European car companies such as BMW and Mercedes-Benz have suffered strong initial falls in their prices due to the forecast of tariffs in the US.
– Energy companies with exposure to renewable energies in the United States, such as Iberdrola or Acciona, have also suffered strong initial declines due to fear of fewer subsidies for the sector and a less favorable regulatory environment.
Financial markets tend to overreact, both up and down, to surprising news, even generating good investment opportunities. In any case, after this first reaction, we will have to wait for the markets to calm down to make a more calm assessment.
Between November 5 (election day) and January 20 (inauguration day of the new president) there are 76 days. In a world as turbulent as the current one, news and events can emerge during this prolonged periodof a geopolitical or even judicial nature, that cause additional volatility in the financial markets.
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