Written by Peter Sproule, CFP, CLU, CHS

 

With the US General Election now behind us with what has turned into a sweep for the Republican Party and the President-Elect, Donald Trump, there is a lot of anticipation for the start of the next term on January 20, 2025. For investors, this period can be confusing, as talking heads guess at what policies and changes may or may not happen, and when. As of this writing, the S&P 500 in the US has jumped, as has the US dollar, with gold sinking, which all suggests very positive expectations of the US economy.

Key Issues

While we do not have a crystal ball, we think it’s helpful to share some of our opinions on the ideas and promises that Trump has made while vying for his second term in office.

  • Tariffs & Protectionism: Trump stated several times on the campaign trail that he was going to impose 10-20% tariffs on all imports into the US (with higher tariffs proposed on specific goods) and did not mention any exemptions for trade partners like Canada. Tariffs are typically passed along to the end consumer, which if they are unwilling to pay, may lead to a US-based substitution. If US consumers are willing to pay the increase cost of an import, this is an inflationary force. In reality, many foreign companies that sell in the US have set up manufacturing or assembly facilities on US soil, which curtail these tariffs. Trump also would not need the approval of the legislative branch on tariffs, and we think these may be used more as a bargaining chip with trade partners and opponents like China. Depending on how these are used, we think will strengthen the US domestic economy in the short and mid-term.

 

  • Deregulation: in Trump’s first term, his administration did deregulate in several sectors. Deregulation has two affects: it can remove expensive bureaucracy and spark faster innovation, but it can also remove important guardrails on industry. Often, the latter issue of weakening guardrails is not felt until much later, as was the case with Trump’s deregulation of reserve requirements for mid-size banks coupled with poor business diversification that almost led to a regional banking crisis in 2023. That said, finance, energy, and heavy industry are expected to benefit from Trump’s stated plans to deregulate. This can be beneficial for other industries and inflation in the US, as better access to capital and lower energy costs is useful to almost any business.

 

Final Thoughts

With an already strong domestic economy, if Trump is able to achieve some of his stated goals, it is our opinion that the US economy strengthens further in the short and mid-term. This gives us confidence in most of the US market, especially small and mid-cap stocks as they tend to do well in a falling interest rate environment and benefit mostly from strong domestic consumption.

As this relates to Canada, we lack confidence in most of Canada’s economy. A weak Canadian dollar (against most currencies, but especially our largest trade partner) is not helping our own cost of living and has caused some flight of capital out of the country. Trump’s threats of renegotiating the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA, prior to the set timeline of 2026, also has us concerned about potential costs to the Canadian economy.

For other parts of the globe, the prospect of a strong US dollar weighs, and US protectionism will also challenge their own exports. Likely the most impacted are the emerging markets, who traditionally have paid their bonds in US dollars, and with weaker domestic currencies could struggle to do so.

The most important thing to remember is that adept business leaders know how to make money in almost every environment, and being flexible to take advantage of opportunities and manage challenges is now table stakes. As investors, we consider this: American politicians of every stripe understand that when the economy and capital markets do well, they do well.

 

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