Trump Trade 2025: How Trump’s Second Inauguration Could Shape Financial Markets

With Donald Trump confirmed as president once more, his familiar economic policies and stances on international trade are returning to the forefront. His distinct approach of aggressive protectionism, deregulation, and tax reductions, often called the “Trump Trade,” is again under the spotlight.

While catchy, this term reflects substantial shifts. During his previous tenure, Trump’s policies yielded mixed outcomes—some sectors flourished, but employment and healthcare saw declines, and the budget deficit expanded ^[1].

Now, with “Trump Trade 2.0” potentially shaping the economy, investors are left wondering: what might this mean for the markets, and how can they prepare for what’s to come?

Key Points 

• The Trump Trade refers to Trump’s economic strategy of lower taxes, deregulation, and higher tariffs to stimulate US growth. 
• Trump’s policies benefited specific sectors like finance and energy but increased the federal deficit and triggered trade wars. 
• If re-elected, Trump’s policies could favour the stock market and select industries but pose risks like higher inflation and retaliatory tariffs. 

What is Trump Trade 

The Trump Trade can be summed up as Donald Trump’s approach to stimulating growth in the US economy, focusing on less regulation, lower taxes, higher tariffs and lower immigration.  

The Trump Trade has been shown to benefit selected industries and sectors and can have downstream implications for inflation and bond yields^[2].  

Highlights of the Trump Trade in 2016 to 2020 

A strong economy 

Under the Trump presidency, the US economy continued to remain strong with low inflation and good job growth. This continued until the onset of the Covid-19 pandemic, which drove up unemployment and inflation, resulting in Trump leaving office with fewer total jobs than when he entered it.  

Several academics have pointed out that the strength of the US economy was a continuation of the post-Great Recession economic expansion initiated by the Obama administration, which raised questions as to whether Trump should be fully credited for the strong economic performance. 

Job creation and wage growth ^[3,4,5] 

Up until the pandemic, the Trump presidency saw growth in jobs and wages, continuing on from an unbroken streak that began in the previous administration. Unemployment fell to 3.5% in 2019, its lowest level in 50 years. Meanwhile, wages increased 3.1% and 4% in 2018 and 2019 respectively.  

Tax cuts 

The most visible and controversial of Trump’s policies was the Tax Cuts and Jobs Act, which was signed into law in 2018. This would represent the biggest tax overhaul in 30 years.  

While several reforms under the Act are slated to expire in 2025, the tax cuts have wide-ranging effects. Corporations benefited from a permanent tax rate reduction – from 35% to 21% ^[6]. Meanwhile, the Act affected income tax rates, standard deduction, personal exemption, health coverage mandate, tax credits and more for individual taxpayers.  

All told, the tax cuts seemed to have the intended impact. Studies show the legislation likely bolstered economic growth through increased capital investment in the private sector, while consumer spending strengthened as a result of higher after-tax income during the initial years the Act went into effect. 

Booming stock market 

With high employment, rising wages, tax cuts and an overall healthy economy, the stock market enjoyed a bullish few years. After an initial nosedive at the start of the pandemic, the S&P 500 went on to smash several records in a bull run that lasted until 2022. Similarly, the Dow Jones Industrial Average jumped 57% overall during Trump’s term ^[7].  

Annual deficit  

The economic boom under Trump’s watch came at a cost. The tax cuts, together with increased defence spending, caused a widening deficit in the federal budget. In 2018, the annual deficit stood at USD 779 billion. This spiked to USD 984 billion in 2018 and crossed the USD 1 trillion mark in 2020 ^[8].  

Trade tariffs 

Another hallmark of the Trump Trade is the implementation of trade tariffs, which was intended to buttress the American economy against foreign competition from cheap imports.  

The most famous example of this was the “trade war” with China, in which the Trump administration imposed several rounds of tariffs on steel, aluminium, washing machines, solar panels, and goods from China, affecting more than USD 380 billion worth of trade in total. 

China wasn’t the only trading partner affected. Other countries such as Canada, Mexico and the European Union also had trade tariffs raised against them.  

Trade tariffs are essentially a tax on goods imported from target countries. The intention is to raise the prices of such goods, so as to render similar goods produced in the US more competitive. The Trump administration also added that tariffs would benefit American workers, give the US leverage for future trade agreements, and protect national security.  

Hence, studies published in 2024 showed that the tariffs failed to have the desired impact. There were neither increases nor decreases in the number of jobs in the US linked to the various tariffs raised against several goods from China.  

Instead, Trump’s trade tariffs led to tariffs from other countries in retaliation, creating a negative impact on American workers and consumers. 

Revisiting Trump’s previous economic policies 

Market reactions during Trump’s first term 

Tax reforms and corporate benefits 

During Trump’s first term, the 2017 Tax Cuts and Jobs Act (TCJA) was a significant policy change. It reduced the corporate tax rate from 35% to 21% ^[9], which led to increased corporate profits and higher stock buybacks. 

Impact on equity markets 

The equity markets, particularly the Dow Jones Industrial Average and the S&P 500, experienced substantial growth during Trump’s first term. The Dow Jones Industrial Average rose by 57%, the S&P 500 70%, and Nasdaq by 142% ^[10]. This growth was driven by a combination of tax cuts, deregulation, and a strong economy. The markets also saw a significant number of new all-time highs during this period. During Trump’s presidency, the Dow made 126 new all-time highs ^[11].  

Trade wars and global market effects ^[12] 

The imposition of tariffs on over $350 billion worth of Chinese goods and other imports led to increased market volatility and uncertainty. The US trade deficit rose to $679 billion in 2020, up from $481 billion in 2016, with the goods trade deficit hitting a record high of $916 billion. Retaliatory tariffs from China and other countries on US exports resulted in over $23 billion in aid to farmers. These measures disrupted global supply chains and caused fluctuations in stock prices, highlighting the complex consequences of Trump’s trade policies on the global economy. 

How did markets react to Trump’s election victory in 2024 ^[13] 

• The Dow Jones Industrial Average rose over 1,500 points, or 3.6%, marking the first time the blue-chip index has gained more than 1,000 points in a single day since November 2022. 

• The S&P 500 increased by 146 points, or 2.51%, while the Nasdaq Composite increased by nearly 3%. 

• The Russell 2000 index, which monitors small-cap stocks, increased by nearly 6%. 

• The S&P 500 bank index, a benchmark for financial stock, climbed nearly 11%. 

• Tesla (TSLA) stock price shot up 14.75%, bolstered by Elon Musk’s vocal support for Trump. 

With Trump’s inauguration happening on 20 January 2025, will markets continue to rally? 

Anticipated Policies for Trump’s Second Term 

Tax Reductions or reforms 

Trump’s administration is expected to push for the extension of the 2017 Tax Cuts and Jobs Act (TCJA), which includes significant tax cuts for individuals and corporations. The extension of these tax cuts could benefit high-income earners and businesses, potentially boosting consumer spending and corporate profits. However, it may also increase the federal deficit, leading to concerns about long-term fiscal sustainability. 

Deregulation efforts 

Trump’s second term is likely to see a continuation of his aggressive deregulation agenda. This includes reducing federal oversight in industries such as energy and technology. For the energy sector, this could mean fewer restrictions on fossil fuel production and infrastructure projects, potentially lowering costs for energy companies but raising environmental concerns. In the tech industry, deregulation could foster innovation and growth but might also lead to increased scrutiny over data privacy and security. 

Trade relations and geopolitical risks 

Trump’s trade policies are expected to remain protectionist, with a focus on imposing higher tariffs on imports from countries like China. This could lead to renewed trade tensions and potential retaliatory measures, impacting global supply chains and market stability. Additionally, Trump’s approach to geopolitical issues, such as reevaluating U.S. aid to Ukraine and NATO commitments, could create further uncertainty in international markets. 

Elon Musk and the DOGE (Department of Government Efficiency)  

Elon Musk is set to co-lead the newly formed Department of Government Efficiency (DOGE), which aims to cut federal spending by up to $2 trillion ^[14]. This initiative could lead to significant budget cuts across various government agencies, potentially affecting public services and federal contracts. Musk’s involvement may also bring a tech-driven approach to government efficiency, focusing on transformative innovation and aggressive cost-cutting measures. 

What to Expect from the Return of the Trump Trade? 

With Trump back in the White House, his economic policies are likely to influence multiple sectors—here’s what to keep an eye on: 

Impact on the stock market ^[15,16] 

The stock market generally performs favourably during election periods, finishing with an average increase of 6.8%. This was seen to hold true regardless of which candidate won. 

With Trump’s presidential prospects now rising, we’re already seeing a shift across global markets in anticipation of his potential return to the White House. His expected economic policies—focusing on reduced regulation, lower taxes, and expanded oil and gas production—have led to positive investor sentiment.  

Notably, S&P 500 futures jumped 2.2%, while smaller, domestically focused companies in the Russell 2000 Index climbed 5.5%, as these firms are seen to benefit from the protectionist stance often favoured by Trump’s policies. 

In particular, Trump’s return will likely mean extending or eliminating the 2025 expiry of the Tax Cuts and Jobs Act. This move would continue tax cuts for both corporations and individuals, likely spurring further private-sector capital investment and providing a stimulatory boost to the economy. 

Impact on bond yields ^[17] 

Trump’s pro-business and de-regulatory policies, alongside potential increases in government spending, have already begun to stir expectations of an active economy and possibly rising inflation. Recent market activity shows a 14 basis point rise in the 10-year Treasury yield, reaching a four-month high of 4.41%, as investors position for the inflationary effects of Trump’s potential fiscal policies. 

Should inflation begin to rise under these policies, it’s likely the Federal Reserve would opt to maintain higher interest rates, providing a buffer to control inflation if needed. With interest rates expected to stay elevated, bond yields could continue to increase as investors seek competitive, low-risk returns, though this would likely result in declining bond prices and a more subdued bond market overall. 

Market sentiment also suggests the possibility of yields climbing even further, with some experts anticipating the 10-year yield could hit 5% within the year. This expectation aligns with Trump’s approach of ramping up industrial and infrastructure spending, which could fuel inflationary pressures, thus impacting both bond yields and the broader interest rate environment under his administration. 

Impact on Dollar strength ^[18] 

The strength of the US Dollar is closely tied to the outlook of the economy, and with Trump’s rising presidential prospects, the dollar has already shown significant gains.  

Following recent market moves, the Bloomberg Dollar Spot Index jumped 1.2%, marking the dollar’s strongest rally in over four years. This surge reflects confidence in Trump’s anticipated pro-growth policies, which are expected to boost the US economy and, by extension, the dollar’s strength. 

External factors are also bolstering the dollar’s dominance. Economic struggles in other major economies, such as a recession in the eurozone and setbacks in Japan and China, are contributing to weaker global currencies, making the US Dollar an even more attractive asset for investors.  

A stronger dollar tends to increase the appeal of American equities, potentially drawing more international investment into the US market. Historically, a rising dollar has often correlated with gains in the S&P 500 Index, with the index moving up alongside the dollar’s value roughly 40% of the time over the past two decades. 

However, a robust dollar brings challenges for specific sectors. US exporters may find it harder to remain competitive internationally as their goods become more expensive for foreign buyers. Additionally, companies with substantial overseas operations could see profit margins tighten as revenue from foreign currencies converts to fewer dollars.  

While a strong dollar could support stock market growth, it may introduce headwinds for American exporters and multinational corporations, highlighting a complex trade-off in the broader economic landscape. 

Impact on specific sectors ^[19] 

Financial services 

After Trump won the 2016 elections, the financial services sector significantly outperformed the overall market. While the S&P 500 rose just 3% following the election, the S&P Financials index advanced by more than 10%. 

The spike was driven by Trump’s pro-business, deregulatory stance, helping propel banks and financial institutions which benefited from loosened rules around capital requirements.  

Should he recapture the presidency, Trump is expected to continue paring back regulations, which could give financial providers more leeway to expand their operations, raise debt, and increase economic activity. The deregulatory environment will likely help the financial sector emerge as winners as a result.  

Technology  

The technology sector is expected to benefit from a Trump return to the White House, owing to the continuation of the Tax Cuts and Jobs Act that he is likely to implement.  

When the Act was first introduced in 2017, the massive reduction in corporate taxes from 35% to 21% meant that companies gained a 14% bonus on their balance sheets ^[20]. This was a huge boon for companies in the high-profit technology sector, leading to increased investment, stock buybacks and dividend payouts. 

Consequently, the technology sector stands to continue enjoying a lower tax environment that could help drive performance.  

Energy ^{[21, 22]} 

The US has well and truly become the largest oil producer in the world, in 2024, leading production volumes for the sixth year in a row. Trump has declared his intention to lean heavily into the country’s rich oil reserves – famously encapsulated in his “drill, baby, drill” catchphrase.  

As such, the energy sector – specifically, oil and gas producers – will likely benefit from friendlier policies as Trump seeks to advance domestic drilling. The increased access to oil will strengthen America’s energy self-reliance while cementing the country’s status as a key oil exporter.  

Additionally, the expansion of the oil and gas industry will see more jobs created, further propping up the performance of the sector while raising its status as an economic growth engine. 

Manufacturing ^[23] 

A resumption of the Trump Trade would likely see continued strength in the US Dollar, leading to less global competitiveness for American exporters and increased foreign exchange risks for companies that collect foreign revenue, as discussed earlier.  

On the positive side, another way the manufacturing sector could be affected is the increased prioritisation of the CHIPS and Science Act to improve US semiconductor production capacity and lessen reliance on overseas manufacturers.  

This could result in increased funding, tax breaks and other incentives to accelerate the development of the sector, paving the way for the sector to outperform in the near future.  

Infrastructure  

Infrastructure investment was one of the rare few issues that garnered bipartisan support. The Infrastructure Act, signed into law by Biden in 2021, provisions USD $1.2 trillion for infrastructure projects till 2026; to date, over USD $490 billion remains to be allocated ^[24].  

This is highly promising for the infrastructure sector, especially since Trump is widely expected to throw his support behind projects involving building and repairing roads, upgrading airports, and improving the nation’s ports and harbours.  

For this reason, companies specialising in construction, civil engineering and related services could benefit from a Trump second term. 

Global implications of the Trump Trade ^[25,26] 

Here are some key highlights to consider in the event of a Trump victory.  

Universal tariffs on all imports 

Trump wants to leverage the economic might of the US to elicit concessions from trading partners. He blames the global trading system for problems in the American economy including lost jobs, closed foreign markets and an overvalued dollar.  

However, when Trump enacted trade tariffs the last time he was in office, trading partners retaliated in kind. As such, imposing a universal trade tariff on all imports would likely see a higher degree of retaliation from most, if not all, trading partners.  

This could lead to serious consequences around the world, including lowered trade and global growth, supply chain disruptions, and higher prices for all. 

Renewed trade war with China 

The Republican candidate has threatened to step up the trade war with China, increasing tariffs to as high as 60%. This would not only hinder China’s recovery, but the fallout could spread to the greater global economy.  

This is because China is an important driver of global growth, and escalation of the US-China trade war is likely to increase inflation levels around the world, causing central banks to embark on a new round of interest rate hikes. As a result, macroeconomic uncertainty would deepen, eroding investor confidence and tamping down stock market returns.  

Conclusion: Stick to a balanced strategy  

Clearly, a return of the Trump Trade could bring about complex and far-reaching consequences, and it is difficult to predict which way things will turn out. Afterall, the strength and impact of policies don’t solely depend on who’s in the White House, and partisan factors will also play a role.  

We’ve covered a lot already, so we’ll wrap things up by saying this: The US Presidential Elections is an exciting time to look for trading opportunities but be careful not to overcommit based solely on the latest news headlines. Remember that things are moving quickly, and the market can change at a moment’s notice.  

Set aside a reasonable budget to make short-term bets as they come up but be sure to maintain your long-term strategies as well. Afterall, the election candidates come and go, but the market is still largely ruled by fundamental factors.  

Ready to seize opportunities in market volatility? Open a live account with Vantage today and begin trading CFDs equipped with the insights you need to navigate the complexities of the US Presidential Elections.

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