By David Born and Christian Krys
The 2024 United States presidential election is approaching, and there is much speculation about the possible outcome and its potential impact on the economy. What would be the likely changes in the economy if Trump were to win again? And what would be the key takeaways for executives to ready their businesses for Trump 2.0? In our latest study we take a step back from the clamor of daily headlines, and instead we dive into the data and present a sober and fair assessment of what can be anticipated about the economic impact if a second Trump presidency comes to pass. In 2017, Trump's first term was marked by major tax cuts, especially for corporations and individuals, as well as cutting down regulation regarding environmental protection and the financial industry. He also pursued a protectionist trade agenda, imposing tariffs on many countries, especially China, to reduce trade deficits and protect US industries. While GDP growth was solid during Trump’s first term – at least until Covid-restrictions took their toll – both the tax cuts and the measures to counter the impact of the pandemic drove public debt to new heights. Furthermore, despite the imposition of new tariffs, the US trade deficit continued to widen.
What would be the likely economic implications if Trump were re-elected this November? Any analysis of this question must start from two basic arguments. Firstly, while Trump's policy priorities have not changed since his first term, the domestic and global economy have: higher interest rates, a burgeoning national debt, and lingering memories of inflationary spikes in the post-pandemic era all add up to a very different economic backdrop compared to Trump’s first term in office. Secondly, the ability of any U.S. President to implement policies is contingent upon the partisan composition of Congress. If the House of Representatives and the Senate are controlled by different parties, it would pose significant challenges for the President to advance his agenda.
"A full repeal of IRA incentives seems unlikely."
Should the Republicans win the presidency and and both chambers of Congress, we expect most tax breaks introduced in the 2017 Tax Cuts and Jobs Act (TCJA) - slated to expire by the end of 2025 - to be prolonged. Most of these extensions would focus on the TCJA's provisions related to personal taxation. In brief, the continuation of the TCJA's measures would cost approximately USD 3.4 trillion in the budget window until 2035, escalating the federal debt-to-GDP ratio by approximately 9 percentage points compared to the current law.
Unlike almost all personal tax provisions, set to lapse after 2025, most corporate tax provisions are permanent. Among policy advisors closely associated with Trump, there are even calls for further corporate tax cuts in addition to extending the legislation of the TCJA. Specifically, under the umbrella of the "2025 Presidential Transition Project", policy advisors suggest reducing the corporate income tax rate from the current 21 percent to 18 percent. To fund this in part, they propose broadening the tax base by radically simplifying the tax system and largely abolishing tax deductions and exclusions. Furthermore, all tax increases enacted in the 2022 Inflation Reduction Act (IRA) under President Biden, such as on stock buybacks, the coal excise, or book minimum taxes, are to be abolished according to policy advisors. Whether additional tax cuts are implemented or the current provisions of the TCJA are extended, both scenarios are expected to exert adverse effects on the national budget.
While it may appear obvious that Donald Trump would cut back on President Biden's signature bill, the IRA, to finance his future tax plans, this assumption is not as straightforward as it may seem. Of course, under a re-elected President Trump, the executive branch could influence IRA and associated energy and environmental policies. This might involve delaying fund implementation, reducing staff in relevant agencies, appointing more political figures to staff positions, classifying more scientific output as requiring review, withdrawing from COP, and implementing further measures. But Republicans would have to win the presidency and both chambers of Congress to fully repeal the IRA - or at least sizable parts of it. What is more, both houses and the President would have to form a consensus on which programs to cut or shrink. An attempt to fully repeal the IRA tax credits by a potential Trump 2.0 administration would most likely provoke significant backlash among the Republican party, especially considering that clean energy investments already greatly benefit the economies of “red” states. Thus, a full repeal of IRA incentives seems unlikely.
"While President Trump's administration may promote business-friendly regulations, his trade policies could potentially negate any positive economic impact."
Energy is also a focal point in Donald Trump's election campaign, with consistent emphasis on the significant rise in energy prices in recent years. If Trump were to return to office, we would expect him to reverse many of the Biden administration's initiatives that are aim at combating climate change and instead renew efforts to expand fossil fuel production. During his first term, Trump and the Republican-controlled Congress already rolled back around 100 climate protection laws enacted by the Obama administration, resulting in an estimated cumulative increase in emissions of 1,828 million metric tons of CO2 equivalents by 2035. In the event of a potential second term, efforts to dismantle clean energy laws and regulations enacted during the Biden administration should be expected. Some of Trump's advisors even suggest withdrawing the United States from the UN Framework Convention on Climate Change (UNFCCC) and the Paris Agreement again.
If Trump were to return to office for a second time, it is likely that his administration would also continue to roll back regulatory measures in areas other than environmental protection. During Trump's first term, his administration rolled back numerous regulations across various sectors, aiming to reduce bureaucratic red tape and stimulate economic activity. For a possible second term in office, right-of-center policy advisors are advocating for further deregulation, particularly within the financial sector. Accordingly, the next Trump administration would be expected to focus on reworking the financial regulatory framework to enhance regulatory efficiency, reduce associated costs, and address regulatory gaps.
The prospect of a business-friendly regulatory and tax environment is expected to boost the M&A environment in the United States in a possible second Trump term. During his first term, Trump's administration already took a relatively hands-off approach to antitrust enforcement, fostering a surge in M&A activity. Generally, we expect M&A activity to rebound amid a generally favorable business climate and the expectation of declining interest rates during the next presidential term.
The prospect of Donald Trump returning to the White House also raises questions regarding the future of US-China trade policies. Trump's initial tenure was characterized by an aggressive trade stance against China, emphasizing tariff impositions and trade barriers aimed at rectifying what he perceived as unfair trade practices and intellectual property theft by China. These actions led to a trade war that not only affected the two economies but also had ripple effects across global markets, disrupting supply chains, and increasing costs for consumers and businesses worldwide. At the same time, Trump was able to change the national consensus regarding economic relations with China. Most trade restrictions were continued or even expanded on by President Biden. Should Trump assume office again, it is plausible that he may escalate his confrontational trade policies towards China. This could involve increasing tariffs on Chinese goods, potentially leading to retaliatory measures from China.
In an interview with Fox News, in February 2024, Trump specifically suggested that he would consider imposing a tariff upward of 60 percent on all Chinese imports if he were to regain the presidency. Such a scenario would exacerbate tensions between the world's two largest economies, affecting global trade networks, and possibly leading to a further decoupling of US and Chinese tech and manufacturing sectors. Even a more tempered stance by the US, and possibly other Western nations, towards China could still result in substantial damage. An analysis based on a scenario by economic advisory Oxford Economics gives an idea of the damaging impact such an escalating trade would have. The scenario assumes that the US imposes a punitive tariff of 20 percent on the imported value of goods from China, and that other Western nations, such as the EU, UK, Japan, and Canada, follow the US example and impose tariffs of 10 percent on China. China retaliates with similar tariffs. The ramifications of such a scenario would be significant for all involved economic regions, with the Chinese economy suffering most notably. By the end of a potential second term for Trump, the estimated damage to the US economy would reach approximately USD 900 billion, equivalent to 4 percent of US GDP in 2023. For China, the damage by 2028 would be even more substantial, at USD 1,638 billion or 10 percent of their GDP in 2023. The EU, while still affected, would experience relatively milder consequences, with damages totaling "only" USD 475 billion or 3 percent of the EU's 2023 GDP.
How should CxOs prepare for a potential second Trump presidency? CxOs must develop a comprehensive understanding of the likely implications of a second Trump presidency on economic policies. To be to the point, in the realm of international trade, tariff escalation on US imports and confrontational trade policies towards China may fragment and destabilize the global trade system and strain or even disrupt value chains. Concerning the IRA, while a full repeal of the IRA is improbable, potential cutbacks on President Biden's landmark legislation could jeopardize incentives for electric vehicles (EVs), EV charging, energy efficiency, and solar power development. Finally, regarding future US energy policy, in the short term, a shift away from climate protection measures and an expansion of fossil fuel production may alter the incentives for investments in clean technology. Nevertheless, in the long term, the inexorable realities of climate change will make a sufficient supply of “green energy” both a political and an economic necessity.
Our recommendations for CxOs facing this situation are as follows:
Register now to access our full study, which assesses that a second Trump presidency could lead to solid GDP growth, higher public debt, and a widening trade deficit due to further tax cuts, deregulation, and protectionist trade policies.
![Economic harm caused by a renewed Sino-US trade war [GDP growth under different scenarios*, index, 2024 = 100]](/content_assets/content_images/captions/24_2269_MMP_RBI_Quarterly_Trump_2025_GT03_large_image.png)
