Trump Wins: Here Are The Economic, Market, Tax, Tariff, Immigration And Regulation Implications

After a blowout victory by Trump in the presidential race - not just in the electoral vote but the popular vote as well, one which casts a huge question mark on those 16 million "Biden votes" that mysteriously disappeared since 2020...

... coupled with a majority for Republicans in the Senate, prediction markets currently put the odds of a Republican sweep at around 90%. Still, with many potentially decisive races in California where the vote could take several days to count, the House outcome might not become entirely clear until later this week or, possibly, next week although a sweep is clearly the most likely outcome.

Below we summarize some of the key consequences from the Trump victory:

• Tax Cuts: If Republicans win a narrow majority in the House, this would allow for full extension of the 2017 tax cuts that expire at the end of 2025, likely including reinstatement of some expired business investment incentives. Congressional Republicans will also likely support modest additional tax cuts to accommodate some of Trump’s campaign proposals, but expect these proposals to be scaled down and would cut taxes by a few tenths of a percent of GDP, primarily focused on individual income taxes (not corporate).

• Fiscal Spending: In a Republican sweep federal spending growth will rise somewhat, particularly on defense. By contrast, in the less likely scenario that Democrats win a very slim House majority, it is likely that we get somewhat greater fiscal restraint as the modest net tax cuts we expect under a Republican sweep would be unlikely, and some of the upper-income tax cuts would be more likely to expire at the end of 2025.

• Tariffs: Goldman expects Trump to impose tariffs on imports from China that average an additional 20pp. While the 10-20% across-the-board tariff that Trump has proposed is not our base case, we believe it is very possible (40% chance) that such a tariff will be implemented. We expect auto tariffs to come into focus and we assume tariffs on auto imports from the EU, though this could be applied more broadly. We estimate that this combination of tariff policies would provide a one-time boost to core PCE inflation that peaks at 30-40bp and a modest drag on GDP.

• Immigration: we expect an incoming Trump administration will reduce immigration to around 750k/year, slightly below the 1mn pre-pandemic trend. In the event that Democrats manage to win a narrow House majority, we would expect immigration to decline less, to a pace around 1.25mn/y

• Regulation: an incoming Trump administration would take a lighter-touch approach, particularly with regard to energy, financial, and labor policies. By contrast, while some aspects of antitrust policy might ease slightly, Goldman would expect scrutiny of the tech sector to continue.

• Europe: Goldman expects Trump’s policy agenda to affect the European economic outlook via several channels. First, renewed trade tensions are likely to weigh materially on growth. While the proposed 10% across-the-board tariff is a clear risk, the baseline expectation is that Trump imposes a more limited set of tariffs on European economies, targeting primarily auto exports. Second, Trump’s re-election will likely entail renewed defence spending and security pressures for Europe. Any resulting growth boost, however, is likely be limited by modest military spending multipliers in Europe, upward pressure on long-term yields from higher deficits and negative confidence effects from elevated geo-political risk. Third, Goldman expects small net spillovers from shifts in US macro policy and financial conditions. Taken together, Goldman's analysis points to a 0.5% hit to real GDP in the Euro area, ranging from 0.6% in Germany to 0.3% in Italy, with a moderate 0.4% hit to the UK. Expect the bulk of the growth hit to materialise between 2025Q1 and 2025Q4.

• Market reaction:

  • Dollar: While it has pulled back from earlier session peaks, the Bloomberg Dollar Spot Index is staying firmly higher. The Mexican peso leads losses against the greenback, given its exposure to potential tariff risk that comes with a Trump presidency.

  • US equities: S&P 500 futures have extended their advance to more than 2% and are trading near the highs of the day. Trump sensitive names (i.e. TSLA & DJT) are posting significant gains.

  • Treasuries: Yields are higher across the board, led by the 30-year sector as expectations for inflation under a Trump administration surged. The 18-bp jump in longer-maturity US yields is poised to be the most since 2020.

  • Global bonds: European bond markets are diverging from Treasuries and are gaining across the curve, with the advance concentrated in the short-end. That’s likely due to a ramp-up in expectations for further rate cuts from the ECB and BOE.

  • Rates: Traders continue to nearly fully price a 25-bp rate cut from the Federal Reserve at Thursday’s policy decision, and see more than a 60% chance of another such reduction by the December meeting.

  • Bitcoin: The cryptocurrency is up more than 6%, set for its biggest advance since August. Its gains have moderated from earlier extremes — at one point, it was climbing nearly 9%, which was its steepest intraday advance since February.

  • Commodities: The dollar’s advance has dragged the Bloomberg Commodity Index down for the first time this week, though gold has been a standout gainer. As colleague Nour Al Ali noted, bullion’s haven appeal as traders brace for policy uncertainty in a Trump presidency more than offsets the drag from a stronger greenback.

More from Goldman Sachs available to pro subs.

BofA, meanwhile, agrees with Goldman regarding higher tariffs on China - and also believes they could derail the Fed cutting cycle.

We don’t expect the Fed to pre-judge the Trump policy agenda. But we think it will pause the cutting cycle if large tariff increases are announced, assuming the economy is still on solid footing. Inflation remains above target and we think the Fed will err on the side of caution, after having incorrectly assumed that the 2021 supply shocks would be “transitory”.

Full note available to pro subs here.