The first day of Donald Trump’s second term is behind us, and this presidency promises to be a far cry from his first. Back in 2017, Trump was the surprise winner, and both he and the Republican Party were caught unprepared for the challenges of governing. This time, things are different.
Trump not only won re-election, including the popular vote, but also strengthened the Republican grip on the Senate, the House of Representatives, and the Supreme Court. Over recent years, the party has reshaped itself in Trump’s image, and opposition seems muted compared to the defiant stance of Democrats during his first term. Even on Wall Street, voices of support for Trump are now openly heard.
Public opinion sets the boundaries
Trump’s approval rating, at 47.6 percent, is higher than during his first term. The chaotic improvisation of his early presidency is gone, and a weakened media landscape means Trump can largely bypass traditional scrutiny. However, his mandate has limits. His pledge to curb immigration faces public sensitivity; mass deportations or separating mothers from their children could quickly erode his support. Similarly, Trump must tread carefully with tariffs, ensuring they don’t hit American consumers too hard.
Inflation as battleground
A significant difference this time is inflation. While it was a non-issue during Trump’s first term, high inflation under Biden changed the game. Trump knows that no leader can win elections with persistently high inflation. In every developed country that held elections last year, incumbent parties suffered heavy losses due to inflationary pressures. To maintain momentum into the midterms, Trump must keep inflation in check and boost Americans’ purchasing power, which means he cannot let the budget deficit spiral further.
Trump’s Treasury Secretary is targeting a deficit of three percent, alongside economic growth of three percent, aided by an additional three million barrels of oil production per day. The administration also intends to steer clear of influencing Federal Reserve Chair Jerome Powell’s decisions. This approach reflects a surprisingly conservative, market-friendly economic strategy.
Unconventional policies
During his first term, Trump replaced unconventional monetary policy with three bold strategies: cutting taxes during an economic boom, rolling back regulations, and seeking a level playing field for American firms facing trade barriers in Europe and China. While tax cuts and deregulation succeeded, his trade efforts fell short. Under Biden, the trade conflict with China escalated further, and Trump now plans to use tariffs to secure better bilateral deals.
In the US, foreign trade policy lies largely within the president’s authority. This places the stock market as a critical barometer of Trump’s success—any policy the market views unfavourably is unlikely to last.
Lower taxes
Trump will face negotiations with Congress to secure further tax cuts. The debt ceiling looms, and fiscal conservatives within the Republican Party remain committed to balancing the budget. Temporary tax cuts from Trump’s first term, worth an estimated four trillion dollars, must also be extended. On the campaign trail, Trump floated additional measures, including eliminating taxes on tips, social security benefits, and overtime pay.
The risks
Perhaps the biggest risk lies in Trump’s admiration for strongman leaders, which could lead to hasty compromises. A potential deal over the war in Ukraine might heavily favour Vladimir Putin. Although Trump has not yet ended the war as he promised, the conflict’s conclusion seems imminent. Americans are likely to resume trade with Russia sooner than Europeans, who remain more cautious.
In Asia, Trump’s team has signalled a shift in policy, suggesting Taiwan could be viewed as a renegade province of China—aligning closely with Beijing’s stance. In Iran, Trump might opt for a deal that preserves the ruling regime, even as the country appears on the brink of significant political change.
Village People
Trump’s policies, coupled with surging productivity, are creating an extraordinary economic climate unseen in a century. Higher productivity supports stronger growth while taming inflation. Lower taxes, deregulation, fiscal prudence, and freer markets evoke comparisons with the supply-side economics of Reagan and Thatcher. This blend of policies powered the Roaring Twenties—a decade of rapid economic expansion and cultural transformation.
However, while the Jazz Age symbolised that era, this time around, the soundtrack might come from the Village People—a nod to the quirks of modern political theatre.
Han Dieperink is chief investment officer at Auréus Vermogensbeheer. He previously served as CIO at Rabobank and Schretlen & Co.