Trumponomics | Principles, Policies, and What It Means for the Economy

During his first presidential term, Donald Trump repeatedly claimed that the economy was the greatest in American history. While overstated, the president-elect’s claim stems from positive statistics and indicators and the economy’s inherited growth. This guide will analyze Trumponomics: Trump’s principles and signature economic policies, how they affected the economy in the past, and what they mean for the economy in the coming term. 

Trumponomics explained

Economic policies frequently mentioned in Trump’s interviews and public speeches can significantly affect the current economic climate and the stock market direction. Here are the three principles of Trumponomics:

• Protectionism, such as introducing tariffs towards the countries of the EU, Canada, and Mexico and escalating the trade war with China;
• Cross-board tax cuts, similar to the Tax Cuts and Jobs Act enacted in 2017 during his first presidential term;
• Deregulation, described as efforts to minimize government interference and spending, especially in environmental, healthcare, and financial sectors.

The truth is—we cannot know exactly in which direction the economy guided by these neomercantilist measures will go. However, we can consider the effects we witnessed during Trump’s first presidential term. 

That said, the period went through two significant events that had an oversized impact on the stock market, far beyond the reach of the effects of his policies. These two additional factors include:

• Donald Trump became president at the time of the longest period of economic growth in modern U.S. history;
• The COVID-19 global pandemic of 2020 plunged the economy into a recession.

Since we cannot split the effects of these events from the impact of Trump’s economic policies, it is difficult to fully understand how today’s economy responds to the introduction of protectionism. However, we can still paint a rough image and estimate the economy’s potential response.

Bidenomics vs. Trumponomics 

Trumponomics represents a turn away from ‘Bidenomics,’ or economic policies of the Joe Biden administration. Here’s a summary of key differences between the fiscal approaches of the two presidents, with a table that contrasts the differences of Bidenomics vs. Trumponomics:

In short, Bidenomics focuses on more regulations and more public spending supported by taxing the rich. At the same time, Trumpnomics strives to cut taxes, limit regulations and government intervention, and introduce protectionist trade policies. If we simplify the differences even more, we can say that Biden pursues progressive interventionism while Trump advocates conservative neo-mercantilist policies. 

Trumponomics between 2017 and 2021

Donald Trump has been vocal about his anti-globalist economic policies and rarely made compromises on his neo-mercantilist stance. His focus on trade tariffs, deregulation, tax cuts, and limited government during his first presidential term resulted in the following policies:

1. Tax Cut and Jobs Act

The Trump administration’s intention to reduce taxes across the board resulted in the Tax Cuts and Jobs Act (TCJA) of 2017 with the intention to boost economic expansion and stimulate consumer spending.

The Act lowered the corporate tax rate from 35% to 21% and implemented broad individual tax cuts by reshuffling individual income tax brackets. Additionally, it brought forth a 20% deduction for certain pass-through business income and shifted tax policy to a territorial system to motivate companies to return foreign profits to U.S. soil.

Proponents state that the lowered tax helped the economy expand and increased corporate profits. On the other hand, its critics point out that the benefits were unequally distributed and favored mainly rich individuals and large corporations.

2. Deregulation

The second prominent Trumponomics feature in the first presidential term was deregulation. It represented the collective effort of the federal administration to cancel ‘excessive government regulation’ and thus incentivize economic growth. 

The most prominent of these efforts was Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”), which required federal agencies to scrap two existing regulations for every new one introduced—with the cost of the new regulation having to be offset by savings from removing the previous ones. 

On a broader note, Trump aimed to eliminate various regulations, including environmental (The Clean Power Plan), financial (The Dodd-Frank Act), and healthcare (ObamaCare). Supporters praise this decision for being pro-business and anti-bureaucratic and for helping the economy grow and reducing unemployment. Conversely, critics argue that the changes mainly benefited megacorporations at the expense of civil service, public health, sustainability efforts, and consumer safety.

3. Tariffs and trade policy

The final major Trump economic policy during this period was the ‘America First’ stance on foreign trade. 

His administration exchanged the North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA). Additionally, it imposed tariffs on billions of dollars worth of imports from China, along with a 25% global steel tariff and a 10% global aluminum tariff, to bolster domestic industries and reinvigorate national manufacturing and security.

The effects of protectionist foreign trade policies produced mild benefits to specific industries but increased costs across the board or domestic consumers. Ultimately, they heightened global tensions, especially with China, as Beijing responded with harsh retaliatory tariffs. Financial experts are still debating whether the policies had net positive or negative results.

Recommended video: Why Economists Hate Trump’s Tariff Plan

Was the economy better under Trump?

So, the question poses itself: was the economy better under Trump? As we said, it is impossible to untangle the results of the economic policy from economic trends at the time, but the following results have been measured:

1. The economy grew. The gross domestic product (GDP), the main indicator of economic performance, increased by approximately 2.5% per year on average until 2020. The boost was likely due to tax cuts, deregulation, and increased consumer spending;

2. Unemployment fell. By late 2019, unemployment in the U.S. was at a historic low of 3.5%, the lowest in 50 years. That said, experts point out that the rising employment rate under Trump’s first presidential term continued the trend set by the previous administration of Barack Obama;

3. The stock market was bullish. It witnessed substantial gains, with the Dow Jones and S&P 500 hitting record highs;

4. Trade policy’s result was mixed. Increased tariffs benefited certain industries and sectors and provided the government with additional revenue. Conversely, it also resulted in a spike in overall prices, slowed economic growth, and raised global tensions. At the end of Trump’s first term, the trade gap had increased rather than closed. 

Outside factors that affected Trump’s first term

The global market is an exceedingly complex system with many moving parts. However, Donald Trump’s first term was marked by two major forces that significantly affected the overall economy:

1. Trump assumed the presidency at the peak of the longest economic growth streak in modern U.S. history. The period of expansion began in June 2009 and lasted until early 2020. During the third year of his presidency, the unemployment rate in the United States was 3.5%, the lowest in half a century, and the average household income was record-high;

2. Three years into Trump’s first term, the country and the world entered the period of the global pandemic of COVID-19, which virtually sank the economy. Within weeks, the unemployment rate jumped by more than 11% to reach 14.7% in April 2020, the last time hitting those levels during the Great Depression. The Trump administration then passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) to handle the crisis, adding $3.1 trillion to the total budget deficit (almost 14.9% of the annual GDP).

After four years of his first presidency, Trump was the only president in modern American history to see a smaller workforce than before his term. Furthermore, the national debt increased by 39% and reached $27.75 trillion, rendering false the promise he made to cut public debt. 

2017-2021 stock market under Trump

While the effects of Trump’s first term on the overall economy can be debated, its impact on the U.S. stock market is evident. As the most apparent indicator of the positive influence on the economy, the stock market under Trump grew in value. 

In fact, the 2017 Tax Cuts and Jobs Act had a dual positive effect on stocks: it reduced corporate taxes, increased corporate earnings, and boosted investor confidence. The result was record peaks in indices like the S&P 500, DJIA, and NASDAQ.

Deregulation also helped secure the investing public’s confidence, especially within the fossil fuel energy, finance, and technology sectors. 

However, Trumponomics also had negative effects by instituting tariffs, which resulted in increased market volatility and heightened tensions with major global trading partners, especially China. The result was a mixed bag, with some sectors doing better, like manufacturing and traditional energy, and others doing worse, like renewable energy.

In general, Trump’s presidency led to a better stock market until the global pandemic. The S&P 500’s average annual return was 13.73% for the period, or the third-highest in modern U.S. history, after Clinton (15.18%) and Obama (13.84%). The ‘golden age’ of the stock market ended due to the global pandemic in March 2020, when the DJIA went bearish and lost more than 20% within weeks.

To sum up, the Trump presidency had a net positive effect on the stock market, with sweeping tax cuts and deregulation inspiring investors and boosting company profits. That said, it should be noted that protectionism and trade wars put a cap on this growth,  increased market volatility, and frequently brought uncertainty about the broader effects on the economy.

How will Trump affect the stock market?

It is widely expected that Donald Trump will follow economic policies similar to those of his first presidency in the future. However, with him at the helm of the government and his party about to control both chambers of Congress (the so-called ‘trifecta’), he will likely amplify both the intensity and range of his protectionist trade policies compared to his previous term.

Regarding party control and market performance, the stock market has historically shown different behavior patterns depending on who controlled Congress. If you compare the average CAGR rates of the S&P 500 index, Democratic presidents outperform Republicans in the same role. However, if you compare median values, Republican presidents beat their Democratic counterparts.

As noted before, historical performance is never an ideal predictor of future outcomes. During Trump’s first term, stock trading was significantly influenced by unpredictable factors beyond his administration’s control.

Which sectors will benefit the most from Trumponomics?

Taking the known effects of Trumponomics policies and applying them to the current market conditions, let’s confirm which sectors will benefit the most from Trump’s second term:

1. Financial sector

Financials are, unsurprisingly, poised to benefit the most from deregulation and corporate tax cuts. 

The anticipated reduced compliance costs and increased lending capacity for financial institutions like banks will boost their potential earnings. Additionally, lower corporate taxes would additionally boost profits across the sector. Even potential measures against inflation, like higher interest rates, benefit financial institutions, enabling them to lend high while borrowing low.

In summary, Trumponomics and Wall Street interests work hand in glove. The incoming regulatory conditions will benefit the financial sector, posing fewer limitations on their work and lifting restrictive measures like fines and audits from banks. 

2. Defense sector

Trump has consistently prioritized national interests and adopted a friendly stance on the military complex, appointing like-minded officials to key positions, such as Representative Mike Waltz, his proposed national security adviser.

His administration is expected to increase the military budget to bolster national defense capabilities. This boost in funding would create new opportunities for investments in military, aerospace, space defense, and cybersecurity stocks. Additionally, Trump’s commitment to pushing NATO allies to raise their military spending could further drive global demand for American-made weapons and defense equipment.

3. Energy sector

Deregulation is set to shape a new direction in the energy sector, with fewer barriers for fossil fuels and reduced incentives for renewables.

Trump has consistently supported oil, coal, and natural gas industries, particularly focusing on boosting domestic production. If continued, these efforts will lead to increased demand for traditional energy sources, while higher costs for imported parts and reduced subsidies may hinder progress toward previous ‘green’ energy initiatives in the U.S.

Ultimately, Trump’s strong advocacy for U.S. energy dominance anticipates efforts to ramp up production and export of fossil fuels, potentially increasing revenues for domestic energy producers. Greater production will likely drive the expansion of pipeline infrastructure, positioning the traditional energy sector to thrive during Trump’s second term.

4. Crypto sector

During his first term, Trump was skeptical of cryptocurrency, but his stance has since shifted into one of support for digital currencies. This shift was reflected in the crypto market’s response to his electoral victory, which pushed Bitcoin to an all-time high.

Furthermore, Trump has pledged to make the U.S. ‘the crypto capital of the planet.’ His approach for this centers on deregulation and more favorable environment for crypto infrastructure and startups. By simplifying compliance requirements and government oversight policies, there measures intend to foster broader crypto adoption. 

As a result of this change in attitude, major crypto exchanges and financial firms focused on digital finance are likely to see significant growth under Trump’s leadership.

5. Technology sector

Trumponomics takes a more lenient approach to mergers and acquisitions compared to the Biden administration. Deregulation will ease regulatory pressure, increasing the likelihood of favorable outcomes for big tech companies, such as Google’s antitrust case.

The future administration’s focus on maintaining American technological dominance, combined with broader deregulation and corporate tax cuts, is expected to give tech companies even more flexibility. This environment will drive greater investments in technological advancements and innovation. Additionally, higher tariffs might incentivize the growth of new semiconductor and hardware manufacturing firms within the U.S.

However, there is a potential hazard that tariffs on imported semiconductors could hurt the sector before these benefits even materialize.

6. U.S. domestic manufacturing

Trump’s ‘America First’ initiative—embodied in deregulation, tax cuts, and tariffs—will strongly encourage domestic manufacturing. These policies collectively incentivize companies to shift production back to the U.S. from manufacturing hubs like Mexico and China.

Deregulation could also reduce environmental and labor expenses for the companies, though at the expense of worker protections and environmental sustainability. The resulting growth in domestic production is likely to drive up demand for American-made materials, tools, and machinery.

Tips and strategies for Trumponomics

While the exact impact of Trump’s economic policies on the national and global economy remains uncertain, change is incoming and inevitable. Based on the administration’s protectionist inclinations, a trend favoring domestic industries is likely. With this in mind, here’s what investors should consider:

• Diversify. A diversified portfolio is always beneficial, but it is essential when you know the market will change. With Trumponomics heralding shifts, maintaining a broad range of investments will minimize the total impact on your assets;

• Some industries benefit from tariffs, others get hurt. Businesses that compete with imports will get higher demand when foreign goods become pricey. This scenario particularly benefits steel, material production, and construction industries. On the other hand, import-sensitive sectors will shrink, and retaliatory tariffs could harm agriculture;

• Stay informed. Staying informed about trade policies, tariff changes, the trade gap, and inflation is essential. Conduct thorough research to stay ahead and adapt effectively to these developments;

• Move to resilient industries. Certain companies handle economic uncertainty better. Consider investing in staple consumer goods, reliable U.S. tech firms, and essential utility providers;

• Remember the basics. Regardless of market conditions, a long-term outlook and strong fundamentals will be king in stock investing. Avoid reacting emotionally or compromising for short-term gains. Stay committed to a disciplined and sound investment strategy.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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