Economic Measures Under Trump

Investing.com — President-elect Donald Trump is set to implement aggressive trade measures, according to BCA Research. This may include a 10% global tariff or targeted tariffs of up to 25% on Canada and Mexico, and 10% on China within his first week in office.

> “Tariffs will be the big news on Day One, or Week One, and we expect President Trump to come out swinging,” the firm stated in a report on Thursday.

BCA predicts that Trump will leverage his political capital effectively, supported by a strong US job market and a weak global manufacturing sector, with midterm elections 22 months away. This aggressiveness is expected to lead to immediate price increases, disruption in global manufacturing, and potentially a deflationary pullback in the future.

Simultaneously, Trump’s proposed tax cuts, estimated at $4.2 trillion over the next decade, may inflate the budget deficit and create inflationary pressures, ultimately keeping Treasury yields high. Following the election, the 10-year Treasury yields have risen by 52 basis points, signaling expectations of budget deficit expansion under Republican governance.

Consequently, this scenario might result in prolonged higher rates and a strong dollar. The dollar has already strengthened by 7% since its lowest point last year. BCA strategists advise maintaining long positions in the currency until the tariff announcements are fully absorbed. However, they caution that if tariffs fall short of expectations, a dollar decline may ensue, with possible market adjustments following initial reactions.

Oil markets have shown a robust response, with Brent crude prices increasing by 7% since the election and 17% since their 2024 low. This increase correlates with rising geopolitical tensions, especially between Israel and Iran, which BCA anticipates may escalate.

Additionally, Trump’s new sanctions targeting Russia and China, particularly in semiconductor exports, could further support energy prices.

Equities, on the other hand, are expected to face volatility in the near term. The rise in Treasury yields combined with uncertainties regarding Trump’s trade strategy may negatively affect markets, especially with impending supply chain issues.

BCA recommends positioning for increased volatility, favoring defensive sectors such as aerospace and defense while also maintaining a long position in US small-cap stocks compared to their global peers.