Trump's Historic Return: 7 Ways His Second Term Could Impact The US Economy

Donald Trump has won in the 2024 U.S. presidential election, making him the 47th president and the first to secure a non-consecutive second term since Grover Cleveland in the late 1800s.

The Republican Party also regained control of the Senate and holds a lead in the House of Representatives, with 198 seats to the Democrats’ 180 as of early Wednesday morning.

Trump's victory paves the way for a significant shift in U.S. economic policy, highlighting the stark contrast between his and Kamala Harris's proposed approaches during the campaign. Trump’s policy direction includes ambitious tax cuts, higher trade tariffs, and potential rollbacks in climate initiatives, which could have significant economic implications for everything from inflation to the national debt.

Here's a breakdown of the seven key economic areas affected by the election outcome — and what was at stake had the results gone the other way.

1) Taxes

Tax policy was a major dividing line in the 2024 election.

Trump campaigned on a promise to extend and expand his 2017 Tax Cuts and Jobs Act (TCJA), with additional reductions for corporations and the restoration of the state and local tax (SALT) deduction. Trump also proposed exempting some forms of income from taxation and repealing green energy tax credits, aiming to attract more business investment and spur economic growth.

“Trump's plan to lower corporate taxes is likely to give a boost to the economy at the expense of a greater budget
deficit. The U.S. economy certainly doesn't seem to need it at this point, and there's a risk of overheating,” said ABN Amro senior economist Rogier Quaedvlieg.

By contrast, Harris supported tax increases targeting corporations and high-income households.

Harris's proposals included raising the corporate tax rate from 21% to 28% and increasing the top individual income tax rate to 39.6% on income above $400,000 for single filers and $450,000 for joint filers.

Harris also advocated taxing long-term capital gains and qualified dividends at 28% for incomes above $1 million and introducing a tax on unrealized capital gains at death above a $5 million threshold.

According to the Tax Foundation, Harris's tax plan could raise approximately $4.1 trillion in revenue over the next decade but could reduce long-term GDP by 2% and cost the economy about 786,000 full-time equivalent jobs.

2) Trade Policy

The two candidates presented vastly different visions for trade.

Trump campaigned on a promise to impose a 60% tariff on Chinese goods and a universal 10% tariff on all imports. His rationale was to protect American manufacturing and reduce reliance on foreign imports, especially from China.

However, economists have warned that such aggressive tariffs could raise consumer prices and provoke retaliatory tariffs from U.S. trade partners.

"A full-scale implementation of Trump's tariffs will increase inflation and put the U.S. in a recession," Quaedvlieg said.

Erica York, senior economist at the Tax Foundation, highlighted that "tariffs are a particularly distortive way to raise revenue, especially as they invite foreign retaliation."

“Trade policy is the main channel by which the U.S. election could generate a global common shock,” wrote JPMorgan in a recent report.

In contrast, Harris supported a more moderate approach, which would involve targeted tariffs on specific industries to protect U.S. strategic interests, similar to the policies followed under the Biden administration.

Harris's plan focused on preserving trade relations with key U.S. allies while using tariffs selectively to support American industries. Analysts expected this approach to mitigate inflationary pressures and maintain a more stable global trade environment.

3) National Debt

The election outcome also set the tone for U.S. fiscal policy, particularly around the national debt.

Trump's fiscal plans, which include extending tax cuts and potentially increasing defense and infrastructure spending, are projected to add significantly to the national debt burden.

According to estimates by the Committee for a Responsible Federal Budget (CRFB), Trump's proposals would increase the federal deficit by around $7.75 trillion in a baseline scenario between 2026 and 2035, pushing the debt-to-GDP ratio from its current level of 102% to 143%, which is 18% of GDP above current law projections.

In a high-deficit scenario, the deficit could rise to $15.55 trillion, pushing the debt-to-GDP ratio to 157%.

Compared to Trump, Harris's fiscal plans took a more restrained approach to debt. In a baseline scenario, their proposals would have added $3.95 trillion to the national debt. This would increase the debt-to-GDP ratio to about 134% by 2035, a lower increase than Trump's plan.

In a high-deficit scenario, Kamala Harris would raise the deficit by $8.3 trillion over the same period, bringing the debt-to-GDP ratio to 144%.

"Fiscal policy is likely to be tighter under divided government than under single-party control," highlighted Goldman Sachs analyst Alex Phillips, suggesting that the elected president’s plan could face more checks and balances restricting high-deficit policies.

4) Inflation

Inflation was a central issue in the election, with economists projecting starkly different impacts from Trump's and Harris's policies.

Analysts broadly agreed that Trump's proposed tariffs — especially a 60% levy on Chinese imports and a 10% universal tariff — could drive up consumer prices in the U.S.

Gita Gopinath, deputy managing director of the International Monetary Fund, stated in October that “tariffs are inflationary.”

JPMorgan analysts estimate that such measures could increase inflation by as much as 2.4% in a worst-case scenario. ABN Amro also warned that Trump's tariff-driven trade policy could push inflation up by 1.7 percentage points.

Goldman Sachs chief economist Jan Hatzius projected a "sizable 1.1pp boost to U.S. inflation" under Trump's policies.

By comparison, Harris's strategy of targeted tariffs on specific industries was intended to avoid widespread inflationary pressure, maintaining a more balanced approach to trade that would limit price increases for consumers.

Economists saw Harris's approach as less disruptive to the broader supply chain.

5) Interest Rates & Fed Independence

The election result will also shape the Federal Reserve's role in monetary policy.

"The resurgence of inflation would force the Fed to raise rates again, or at least keep rates higher for longer," said Quaedvlieg.

Goldman Sachs’ chief economist Hatzius suggested that Trump's policies could keep core inflation above 3% in 2025, rather than closer to the Fed's 2% target. This, Hatzius highlighted, “might well be a reason to delay cuts that might otherwise occur more quickly.”

Regarding the central bank independence role, Trump has a history of pressuring the Fed for lower interest rates, even suggesting negative rates at one point during his previous term.

Analysts at the Brookings Institution expected that Trump's presidency could put the Fed under renewed pressure to align with his economic agenda.

Harris, in contrast, emphasized respect for the Fed's independence. "The Fed is an independent entity and as president, I would never interfere in the decisions that the Fed makes," Harris said during the campaign.

Economists indicated that Harris's stance would allow the Fed to focus on managing inflation and employment without political interference, potentially leading to a more stable and predictable monetary policy.

6) US Dollar

The U.S. dollar is expected to strengthen under a Trump presidency, as higher inflationary pressures could prompt the Federal Reserve to adopt a more restrictive monetary policy stance.

A recent JPMorgan report suggests that a Republican sweep could boost the greenback by up to 7.3% within the first two quarters, while a Harris presidency with a divided Congress might lead to a decline of more than 5% in the dollar's trade-weighted index (TWI), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP.

The table below provides JPMorgan's projections for currency movements over the next one to two quarters based on different 2024 election outcomes.

Election Scenario	USD TWI Change	USD vs. CNY	USD vs. EUR	USD vs. CAD	USD vs. CAD	USD vs. AUD	USD vs. SEK
Republican Sweep	+7.3%	+4.4%	+8.4%	+4.7%	+6.1%	+7.9%	+10.8%
Trump w/ Split Congress	+3.3%	+3.0%	+4.3%	+3.3%	-5.4%	+4.6%	+5.0%
Harris w/ Split Congress	-5.4%	-2.7%	-3.9%	-4.0%	-4.0%	-2.9%	-5.6%
Democratic Sweep	-3.9%	-2.0%	-3.1%	-2.5%	-0.7%	-1.4%	-4.6%

7) Foreign policy

The election outcome also has sharp implications for foreign policy, particularly around climate, energy sanctions and defense spending.

Trump pledged to withdraw from the Paris Agreement and scale back climate commitments made under the Inflation Reduction Act (IRA).

ABN Amro analysts warn that these rollbacks could harm long-term sustainability goals and impede the transition to a green economy.

Harris, in contrast, pledged to uphold the U.S.'s climate commitments, supporting the Paris Agreement and clean energy goals set by the IRA.

According to S&P Global, Trump also suggested he may relax sanctions on Russia to boost oil supply, while keeping a hard line on Iran and Venezuela.

Harris committed to maintaining sanctions on Russia, Iran, and Venezuela, aligning with the current administration's stance on energy security.

In defense, Trump emphasized shifting more responsibility to European allies.

“A second Trump term would likely entail renewed defense and security pressures for Europe. Trump has stressed that he expects European countries to spend at least 2% of GDP on defense, as required by NATO members,” wrote Goldman Sachs economist James Moberly.

Trump even proposed ending U.S. military aid to Ukraine, effectively transferring that burden to Europe.

In contrast, Harris indicated continued support for Ukraine and a collaborative approach with NATO allies, without reducing U.S. military commitments.

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