2025 Political Outlook

To read the full article, see the Investment Strategy Quarterly publication linked below.

Key takeaways:

  • The key market-relevant policies of the Trump administration will be: Tariffs, the debt limit, appointing key personnel, budget reduction and tax cuts.
  • Trump's appointments seem to indicate his seriousness about aggressive policies on tariffs and trade policy. Tariffs may also be used as a negotiating tool.
  • The timing, magnitude and tempo of these policies is still uncertain and we'll be monitoring market reaction closely.

The election of Donald Trump to a second term and the GOP sweep of Congress is a repeat of the 2016 election, but we see a considerable debate about the agenda for his second term. Echoing his first term, tax change, tariffs, and immigration all remain at the top of his agenda. In the ‘what’s new’ camp we highlight a much smaller Republican House majority (in the single digits, compared to the 23-seat majority of 2017), but more Congressional allies and a more robust transition team. A key dividing line for the 2025 policy agenda will be agenda items that can be achieved through executive authorities (including tariffs and immigration), and those requiring Congressional authorization (such as taxes and the debt limit). It will likely be full speed ahead for many of those executive- driven actions given Trump is seeking to avoid the multi-year negotiations that delayed his first term agenda.

The small House majority will introduce new hurdles to the passage of key fiscal legislation, including raising the debt limit, extending the 2017 Tax Cuts and Jobs Act ahead of its expiration in December, and any desired changes or repeals to the 2022 Inflation Reduction Act. A guiding principle for watching Trump 2.0 will be to expect the unexpected and we expect to see frequent diversions from the traditional DC playbook.

Tariffs

Tariffs have formed the centerpiece of Trump’s fiscal and foreign policy agendas, and our base case is that tariffs (including those targeted at specific countries, as well as a global tariff), are coming, but the specifics remain up in the air. The pre-inauguration announcement of the tariffs underscores a key dynamic in Trump’s tariff strategy: His desire to negotiate and make deals. The timing should be viewed as an initial attempt to bring potentially impacted countries to the negotiating table early on. Trump will highlight in his negotiations that each country can avoid these tariffs by addressing his concerns, but his wish to negotiate does not mean he will not follow through on his tariff threats if a desired outcome is not secured. Trump has a range of authorities at his disposal to implement his suite of tariff proposals which also includes the authority to impose a 10-20% global tariff. Several of those authorities would allow him to implement new tariffs almost immediately, and even for tariffs with longer procedural requirements, we would expect those to move relatively quickly.