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Does a United States led by Donald Trump mean higher growth in 2025 and beyond or more geopolitical risks?
BRN expects costs to increase, especially if Trump follows through on his campaign pledges on tariffs. And there's a chance that growth will accelerate soon.
However, time is of the essence.
If tariffs go into effect before large tax cuts are implemented to offset them, consumer spending power will be significantly reduced.
Markets will start to pay more attention to the fiscal chasm, and Treasury yields could rise beyond 5% in the coming year. Higher borrowing costs would have an additional impact on economic activity.
That provides the Federal Reserve with much material for their meeting this week.
However, according to BRN, the latest data shows that the central bank can cut rates again without feeling guilty.
Could the economists be mistaken and could the US economy benefit from Trump's presidency? Both domestically and globally, there are concerns.
Tariff Bear Trap
The cooling jobs market is still a major concern, even though the economy is growing decently and inflation is falling slower than anticipated.
The Fed continues to show signs of an easing bias.
A major worry is tariffs. With no substitute for American-made products and 100% pass-through to the US consumer, a 60% tax on Chinese products and 20% on everyone else would result in a cost rise of $2,400 for every American next year.
The situation could worsen with Trump imposing immediate 25% tariffs on Mexico and Canada.
The "Dealmaker in Chief" has bundled immigration, drug trafficking, military expenditures, and 'free trade' into his demands, so BRN's base case is that he gains some concessions and tariffs are toned down to some amount.
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It will still hurt a lot, but there are ways it won't hurt as much. It is feasible to find alternatives to American-made products, but the manufacturing sector in the US is now only able to supply some of the demand.
Thanks to the rising dollar, international producers may keep more of their currency in their pockets, giving them greater leeway to set prices in any way they like. The profit margins of the American importing company could cover part of the additional expenses.
However, American consumers can expect a decline in living conditions, while American exporters will face the brunt of retaliation.
Therefore, we are heading toward slower growth and increased inflation.
DOGE-Con
There will be a 7% budget shortfall for the United States this year.
Doubters point out that even if all federal employees were fired, the savings would only amount to $450 billion annually, so there's no guarantee that Trump's Department of Government Efficiency (DOGE) will be able to achieve its trillion-dollar savings goal.
The US government's borrowing rates are skyrocketing due to market concerns about the sustainability of government borrowing and inflation caused by tariffs.
As a result, investors may demand a larger return on their risk.
Blockhead
With mortgage rates and corporate borrowing costs reaching fresh cycle highs, the US 10-year yield will break over 5% and potentially go considerably higher.
However, due to a confluence of positive interest rate differentials, geopolitical tensions, and Trump's protectionist policies, the dollar has the potential to move further higher and surpass parity against the euro.
Another potential outcome of Trump's threat of an extremely aggressive tariff regime is a protracted and excruciating trade war.
The effects on inflation and consumer expenditure will be severe. A sharp decline in risk asset values and an acceleration of the likelihood of a recession are both possible outcomes.
Economy Surges to the Moon
Obviously, the economic establishment could be totally mistaken (again!), and Trump is the real deal when it comes to the economy.
Trump's tax cuts encourage businesses to restart employment and investment, which leads to real growth.
The US economy is entering a new paradigm of full employment with no inflation due to AI's quick adoption and huge productivity improvements; at the same time, immigration restrictions limit the supply of workers, which keeps wage growth solid.
Tariff threats have opened international markets to US corporations, and as a result, more global companies are declaring investments in US production facilities.
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As the United States transforms into a manufacturing powerhouse, tariffs are rapidly reduced and pose less of a risk to growth, inflation, and the economy.
Treasury yields declined as bond markets gave Trump the benefit of the doubt, and investors began to believe in the productivity miracle.
Because of this, housing becomes significantly more inexpensive, and new home construction increases due to fewer regulations.
Elsewhere
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Blockcast
In this episode, Takatoshi Shibayama sits down with CEO of Future DAO and Ethelo Decisions, Mathew Markman.
Blending Web3 with cutting-edge decision-making tools to empower communities and transform financial and governance systems, Markman has made significant strides in the Web3 space.
Previous episodes of Blockcast can be found on Podpage, with guests like Peter Hui (Moongate), Luca Prosperi (M^0), Charles Hoskinson (Cardano), Aneirin Flynn (Failsafe), and Yat Siu (Animoca Brands) on our most recent shows.
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