If Donald Trump returns to the presidency, Nomura analysts expect significant changes in economic policy, especially in the areas of tariffs and tax policy.
The firm believes Trump’s second term will likely be about extending expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introducing new tariffs.
One notable change will be in the leadership of the Federal Reserve, Nomura said, although Trump’s ability to directly influence monetary policy will remain limited. Despite this, higher tariffs are expected to be moderately inflationary.
However, the impact on consumer prices will be less than proportional. “Inflation and fiscal expansion are likely to push interest rates higher, especially as the Fed remains hawkish,” analysts said.
These inflationary pressures will be balanced by economic growth, potentially boosted by business tax cuts, despite the uncertainty surrounding policy.
On tariffs, the investment firm believes Trump’s return will likely lead to a continuation of his aggressive trade stance.
Although he proposed a broad 10% tariff, they say historical precedent suggests not all proposals can be fully implemented. But Nomura says his campaign proposals, such as raising tariffs on Chinese imports to 60%, indicate a likely resurgence of a hawkish approach toward major trading partners.
Additionally, they say tax policy will also be critical as many of the TCJA’s provisions expire in 2025.
However, Nomura states, “Trump’s agenda will depend on the composition of Congress, since tax policy changes cannot be implemented without Congressional approval, unlike the president’s authority over tariffs.”