Incoming president Trump has labelled a lot of items day 1 issues and announced plans to sign many many executive orders on the 20th and in the early days of his administration. This piece tries to summarize what we now know about key economic (energy and trade) themes and what I’ll be watching for in the early days of the administration and what may be deferred until later. Immigration policy choices will also be key to the macro outlook, but are a little more out of my wheelhouse. I will comment on them in future as they come up and are macro/market relevant.
Markets will be highly reactive to tariff announcements especially broad tariffs or those on major trading partners. Current market pricing does not reflect a high probability of broad tariffs, but does reflect an assumed persistent inflationary pressure which could reflect some combination of tight labor markets (perhaps tightening due to immigration choices) and tariffs. And of course, US policy will not be the only driver, the choices made by trading partners, whether friend or adversary will be key, both in terms of any retaliation or mirroring policy and in terms of whether market variables are allowed to adjust (currencies in particular.
The sheer number of planned Executive actions suggests that many will be symbolic. However, even those that have little immediate operational effect in the near-term will provide important clues about the policy direction of travel and what Trump, his advisers and in some cases the business leaders who supported him would like to see going forward. As with any legislation and executive action, the details and enforcement matter.
Among the top economic relevant policies will be signals relating to domestic energy policy, foreign sanctions enforcement, tariff sequencing and immigration. In practice, it seems like energy and immigration may be most defined, with the former having been long-crafted with industry input. Immigration choices could be critical to the outcome of many sectors. Other such as tariffs, still seem to be under discussion, both because of internal policy divides and questions on how they may affect revenue. Indeed, reporting has suggested that Congressional Republicans have requested that measures relevant to fiscal policy including measures on the industrial policy moves be deferred until reconciliation.
Looking ahead, the policy process could be quite chaotic, with policies announced and details lacking on some of the measures. That said, both Trump and conservative groups seeking to influence him have been hard at work for months, meaning that in some areas ( energy) industry will have significant impact on policy. The biggest uncertainty will likely come in the area of tariff policy, particularly whether Trump carries through with his pledge to invoke an economic emergency and whether such tariffs will affect major trading partners like Canada, Mexico and China.
Energy: executive orders will likely reverse the pause on lng exports, reverse many environmental reviews and start the process of making it easier to drill on federal lands and reducing fuel efficiency standards. They may also aim to speed up permitting for certain projects including AI-related energy facilities such as those being announced with Damac. measures may aim to pause spending relating to certain IRA credits to come up with a rhetorical end to EV incentives though these measures were passed by Congress, meaning the executive could have most impact on the enforcement details. Real changes to the IRA related incentives will need to come via Congress. Overall energy measures may make it easier for fossil fuel development, but will not necessarily prompt significant more investment. The always great energy sector surveys of the Dallas fed highlight optimism and moderate production increases from small producers but less so for larger ones. Overall, US energy producers will be influenced by the fundamental outlook which reflects demand and competition from other producers, not just domestic regulation.
In the near-term, Trump administration choices around sanctions not domestic energy policy are likely to have more impact on global oil markets and domestic/global inflation. Oil markets are still absorbing the recent escalation in US energy sanctions on Russia, which have contributed to tightening the market, despite the fact that there is a wind down period that allows the delivery of cargos that were loaded before the new sanctions. The Trump administration seems
Trade: on the trade side, what seems clear is that more tariffs are coming in coming days, the question will be whether they are targeted in terms of goods (as some Trump advisors have advocated) or countries, and how long they will last. With the Trump administration looking to use tariffs to fight unfair trade practices (the more traditional use), to achieve non-trade economic or foreign policy concessions, and to raise revenues to replace other taxes, it seems that a true targeted package hoped by some market actors will be unlikely, but concern about the market response and the focus on revenue suggests that broad tariffs will not be a day 1 issue. Still, the sequencing matters. The next weeks will bring not only potential first steps but also confirmation hearings for individuals important to the trade agenda. Which tools the Trump administration chooses will be important in terms of their timing and scope. Use of section 232 and 301 tariffs would likely require public comment periods and ramping up, while tariffs using a new emergency under ieepa ( which provides legal basis for most sanctions) might be implemented more quickly. If such an emergency is called, the scope remains unclear.
North America: Among the more important questions will be whether Trump will follow through on his plans to implement 25% tariffs on all imports from Canada and Mexico, whether there will be a timeline for further moves or whether he will deem recent border promises sufficient. Given the potential for disruption of US industry, the potential inflationary effect on energy prices in parts of the US and the impact on food prices from rising fertilizer, full implementation for a long period seems unlikely. Businesses on all sides of the border hope the threat will be used for leverage not implemented, but it seems likely that it will either be announced and set to come into effect in some months or phased in. The negotiations and lobbying over tariffs and targets will only continue.
China: priorities on China policy remain rather vague and indeed, aside from TikTok, the incoming administration has barely said anything about China in the transition period. Market actors hoping that it means rapprochement would be optimistic. However, the incoming trade team seems likely to push for broad tariffs on China and perhaps on most trading partners, but these may come later in full earnest. Notably, Treasury Secretary Bessent a proponent of more targeted tariffs suggested that he would push China to resume more US agricultural purchases (as required in the Phase 1 Trade deal). If so this would suggest deferral of broad China tariffs. Doing so would be unlikely to close the bilateral deficit much let along the global trade imbalance, but suggests he might be trying to buy time. Notably, we are still waiting to see who, aside from Trump, will really be in charge of trade policy. Will it be Lutnick (deemed in charge of trade by Trump a few months ago), Greer (the USTR) or Bessent? Overall the sheer number of different tariff plans suggests there is not yet consensus.
The TikTok ban, while absorbing a lot of attention on its own will also raise questions about whether it sends a message about other Chinese data concerns. Will the US government become an investor in other joint ventures with China, or just those that are very popular social media platforms? how will Trump manage his interest in pulling in more investment in the US while his team worries about national security risks? investment from the GCC investors in property may be desired, but will he speed approvals for investments in technology which have been blocked in recent years due to China risks? How will his commerce and Treasury implement the outbound investment bans?
Overall, the policy newscycle may go fast and furious in the next few days and the details will matter. Markets are not priced for significant tariffs, though the recent Biden export control expansion did dent some of the concentrated tech rally. Overall, markets are expecting sufficient inflation to limit interest rate cuts, dollar strength (vs G10 and many EM) and continued tightness in energy markets.
Ziemba Insights 