How Donald Trump’s 2nd term could impact business: Elon Musk, tariffs, and more

Donald Trump’s return to the White House after winning the November 5 US presidential election could significantly impact American business. Much of this will depend on his appointments for key positions, such as deputies and cabinet members, including whether Tesla CEO Elon Musk plays a role, as well as the tariffs he decides to impose.

Elon Musk’s support for Donald Trump’s second presidential victory has granted the billionaire entrepreneur considerable influence, potentially helping his companies secure advantageous government treatment.

Impact on Elon Musk and his companies

After some encouragement from the world’s wealthiest person, Donald Trump has stated that he would appoint Tesla CEO Elon Musk to lead a new government efficiency commission. Musk has suggested that at least $2 trillion could be trimmed from the $6.75 trillion federal budget, which could become a significant factor in the upcoming Trump administration.

Federal records show Musk contributed at least $119 million to a pro-Trump spending group and was a vocal supporter of the former president during the critical final stages of the campaign.

Musk’s business ventures, ranging from Tesla electric vehicles to SpaceX rockets and Neuralink brain chips, rely heavily on government regulation, subsidies, and policies.

Musk’s growing political influence follows perceived slights under the Biden administration, which fueled his turn toward Trump’s right-wing populism. For instance, Tesla was excluded from an August 2021 White House EV summit that featured unionized Detroit automakers, which produce only a small fraction of the electric vehicles that Tesla manufactures.

Tariffs

Trump has proposed a 10% tariff on all US imports and a 60% tariff on Chinese-made goods, which, if implemented, could negatively impact the economy by driving up consumer prices. According to the Tax Foundation, a non-partisan think tank, these tariffs could increase taxes by $524 billion annually, reduce GDP by at least 0.8%, and result in the loss of 684,000 full-time equivalent jobs, potentially affecting retail workers, the largest private sector workforce. He has also suggested imposing a 25% tariff on all imports from Mexico.

According to a study by the National Retail Federation, the proposed tariffs could reduce the purchasing power of American consumers by between $46 billion and $78 billion each year.

Central bankers worldwide closely monitor the potential impacts of Donald Trump’s policies following his decisive return to the US presidency.

Trump’s promised tariffs on US imports could disrupt global trade, while his proposed tax cuts would further strain the federal budget, and his deportation plans might reduce the availability of cheap labor. These measures present two major risks: slower global economic growth and faster domestic inflation, which could make the Federal Reserve less inclined to lower interest rates. The result could be a stronger dollar and fewer options for developing countries to ease their own monetary policies.

Impact on economic relations with China

According to Bloomberg, America’s closest allies, Mexico and Canada, would be the most affected. For most other nations, the GDP impact would be relatively minor, though it would significantly alter trade flows away from the US.

During Trump’s previous term, the US imposed tariffs on over $360 billion worth of Chinese goods, which pressured Beijing to negotiate. In 2020, the two sides signed a trade agreement where China pledged to improve intellectual property protections and purchase an additional $200 billion in US goods. However, a later study revealed that China had largely failed to fulfill those commitments.

President Joe Biden kept most of these tariffs in place and introduced new duties this year on imports like steel, solar cells, and electric vehicles.

As in the past, tariffs could again be used as a strategy to bring Beijing back to the negotiating table.

Affect on shares

Shares of major US banks, including Citigroup Inc., JPMorgan Chase & Co., and Goldman Sachs Group Inc., soared on Wednesday as investors bet that Donald Trump would follow through on his pledges to reduce taxes and ease industry regulations.

Trump has promised to lower the corporate tax rate from 21% to as low as 15% and to cut 10 regulations for every new one enacted, creating a more favorable environment for banks compared to his opponent, Kamala Harris, who proposed raising corporate taxes.

More changes

Trump is expected to replace the leaders of the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency, and the Federal Housing Finance Agency on his first day in office, according to TD Cowen analyst Jaret Seiberg.

While the president can only remove Federal Reserve board governors for cause, Seiberg notes that Democrats are likely to retain control of the Fed until late 2026, which could limit bank mergers.

Trump would also have the authority to fire CFPB head Rohit Chopra, unless he resigns first, following a 2020 US Supreme Court ruling that made the CFPB director an at-will employee, subject to dismissal for any reason, Bloomberg reported.

Although the US is already the world’s leading oil and gas producer, Trump aims to remove remaining barriers. He plans to lift the freeze on new liquefied natural gas export permits, expand federal drilling auctions, speed up pipeline permitting, and seek to reverse or weaken regulations targeting power plant and vehicle emissions. His support for the oil and gas industry may also lead him to soften his stance on the Inflation Reduction Act, as oil companies are benefiting from funding for initiatives like carbon capture and sequestration.

(With inputs from Reuters, Bloomberg and Associated Press)

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