Nandan Chakraborty’s Post

Tariffs, Taxes, Deportation - 2025 a Look Ahead Since the election sans bonds, it's been a risk on rally. But as earnings growth is expected to slow 25% in 2025, has the market gotten ahead of itself? I think the best case scenario for the next 12-18 months, is the policy positions Trump has thus far unveiled, offset one another as far as economic growth goes. Deportation, as massive immigration was a tailwind for the Biden administration and GDP, will be a significant headwind for the next 24-36 months; which when combined with the D.O.G.E eliminating redundant agencies and positions, will pressure GDP downward. Tariffs, or the threat thereof, will be inflationary in the medium term and costly for those with sourcing/manufacturing in China, Mexico & Canada. Maintaining Trump's tax cuts will be neutral whereas not being able to maintain the prior will be a negative. Regulatory reform will be a positive for growth; the key here is the time with which it takes to implement along side any actions the Dept of Govt Efficiency undertakes to eliminate wasteful spending and redundancy. And with an inability to engage in international trade between the three largest economies globally, I think the crypto craze will peter out; unless of course one can convince China & India to reverse nationwide bans on the stuff. Heightened volatility in the healthcare sector is going to remain as policy begins to take shape which will ultimately offer investors plenty of opportunity in the new year.

Could your business cope if you had to pay 10% to export your goods into the US? What if it was 15? In our latest North America Brief take a close look at Trump's tariff tax and how it could impact the West. https://lnkd.in/gMV4CitN

Things on my mind: 1. What impact will increased tariffs have on consumer spending? 2. What impact will retaliatory tariffs have on domestic manufacturing? 3. How much Federal spending will Congress and the fictional Department of Government Efficiency be able to cut (I'm leaning towards far less than proclaimed) 4. How much will reduced Federal spending, if any, reduce aggregate economic demand? 5. How much will reduced Federal spending, if any, increase unemployment? 6. Will increased spending on defense and infrastructure offset any reduced federal spending? 7. Given Trump's populist platform, does he have the political will to cut transfer payments, welfare, and subsidies to the many powerful groups that voted for him? 8. How much of a mass deportation of undocumented immigrants will actually occur? 9. How much will immigration really be reduced? 10. How much will any new immigrant / immigration policies impact the prices of goods and services? 11. What will the *sequence* of the new government's policies be? Depending on the sequencing, they could economically be initially expansionary or initially contractionary. 12. How will the long end of the interest rate curve respond to increased inflationary pressures? 13. Will the Fed's cutting cycle during a currently robust economy overheat the economy and put further pressure on the long end of the interest rate curve? 14. How will weakening world economies and a strengthening dollar offset tariffs and inflationary pressures in the U.S.? 15. How much will foreign demand for more attractive U.S. debt given its higher interest rates keep a lid on bond rates? 16. How much inflation can the private sector absorb given its aggregate healthy balance sheets? 17. How will AI impact labor productivity and demand? 18. If the government doesn't drastically curtail spending or AI doesn't radically increase economic growth, will the Fed and treasury resort to financial repression to fight weak demand for Treasuries? (They will...) 19. What will it all mean for commercial real estate? 20. Which Thanksgiving pie am I most looking forward to?

"It’s now widely accepted that pillar 1’s attempt to reallocate a portion of (primarily U.S.) multinationals’ profits to market countries will not provide the hoped-for solution to problems with international tax rules. "Pillar 1 always confronted three big challenges: whether the OECD inclusive framework members could agree on a deal expressed in a multilateral convention and whether countries would sign it, especially the United States. "The third hurdle — U.S. ratification — was always a high bar, but it increasingly appears that the OECD will not even be able to meet the first test: the release of an agreed-upon text for amount A, which contains a formula and mechanism for reallocation of profits." Perspective: Mindy Herzfeld examines digital services taxes and the role U.S. retaliatory measures against them might play in a world of more comprehensive tariffs.

Be it tariffs, changes in tax policy, or the enactment (or termination) of stimulus initiatives, broad changes of economic policies tend to be problematic. There are always winners and losers. There tends to immediate reactions in overall economic performance in the near term. While the longer term trend can be an inverse of the immediate trend. Rolling back the calendar the 1970’s through the 1980’s had massive changes: the transition from the Bretton Woods gold standard mechanism to fiat, deregulation, tax policy changes, monetary policy methodology changes, fiscal policy changes, etc. Upsetting the economic “apple cart” even when necessary usually leads to negative economic effects. The incoming administration probably should be mindful that the longer term results of the previous economic initiatives were largely interrupted by the pandemic period. Much of the current economic performance is tied to the reaction to that event than either administration’s set piece initiatives. The simple fact is when an innovator brings a new product or service to market, the composition of government is likely not a top consideration. But economic stability, predictably likely is a top concern. Negative economic cycles in the United States tend to be the aftermath of a series of economic policies that create a conflict of result. It is usually a domino effect of policies rather than one policy exclusively that creates turbulence, uncertainty. The most important thing economic, fiscal, and monetary policy can do is create stability, certainty, predictability. Economic experience is not much different than exploration, it is always moving forward. As such, a tranquil sea is easier to navigate than the storms. The good news is, the economic participants are usually able to find (work around) opportunities even in the darkest periods. Typically the health of the United States economy is despite political policy making rather than because of it.

"The Era of Trump 2.0 Approaches" As the U.S. election landscape becomes clearer, Trump has gained overwhelming advantages in the Republican primaries, heralding the era of "Trump 2.0." This political transformation will not only reshape domestic U.S. policies but also profoundly impact the global economic order. According to recent polls, Trump's support in key states has exceeded 50%, suggesting his policy proposals may be implemented by 2025. Trade Policy Reconstruction: Return of Tariff Barriers Trump's campaign team has explicitly proposed imposing 10-20% basic tariffs on all imports, with possible punitive tariffs of up to 60% on Chinese imports. Such comprehensive trade barriers will inevitably reshape global supply chain systems. Notably, the ripple effects of tariff policies will directly affect domestic price levels, expected to push consumer goods prices up by 2-3 percentage points, which will significantly impact Federal Reserve monetary policy. Regarding taxation, Trump advocates continuing the core elements of the 2017 tax reform, including maintaining corporate income tax at 21%. However, since congressional legislative support is required, this policy is not expected to be fully implemented until 2026 at the earliest. Given that the current fiscal deficit has reached 6.3% of GDP, there may be limited room for new tax cuts. The cumulative effects of Trump's policy combination warrant vigilance. On one hand, tariff barriers and immigration restrictions will drive up production costs, expected to contribute 0.5-1 percentage point to core inflation; on the other hand, trade friction could drag global GDP growth down by 0.3-0.5 percentage points. In the post-pandemic era where global economic recovery is already fragile, such stagflation pressure requires particular attention.

Trade Wars Are Easy to Win, and Income Tax is Easy to Eliminate

Tariffs are taxes! If income taxes were replaced by tariffs, consumer prices would rise to raise revenue that would be lost. That would lead to US companies to raise their prices to match the prices charged for foreign products that have the tariffs. US companies would not sit by and watch the high prices go unnoticed. And that would be unsustainable. #IRS #taxes #tariffs https://lnkd.in/g8Jkhbku

Wise, interesting, a touch worrying but quality analysis from Paul Donovan as always: Former US President Trump has suggested that US consumers of any goods made (or partially made) abroad should pay a 10% tax. This is a universal tariff. It has happened before, but in very different circumstances. In August 1971, former US President Nixon imposed a 10% “surcharge” on all imports into the United States. Simultaneously, Nixon broke the dollar’s gold link and initiated government control of wages and prices. The 10% rate was chosen as being sufficient to force other countries to revalue their currencies without causing immediate “tit-for-tat” retaliation. The tax was lifted in December 1971 after a currency realignment. In 1971, the US imported 3.4% of GDP. In 2023, it imported 12.7%. Importantly, the structure of trade has also changed dramatically. In 1971, trade was still an “imperial model”—most US exports were made with US components and labor, with some limited raw material imports. Today, most US exporters rely on imported parts to produce their products. A trade tax increases US exporters’ costs, reducing competitiveness. Nixon’s tax had an objective in mind, and retaliation was delayed while currency changes were negotiated. A Trump tax may be more open ended, inviting retaliatory tariffs. The proposed Trump tax would have a bigger economic impact than the Nixon tax.

Is Trump's victory in the presidential election a chance for Europe and the US? Goldman Sachs predicts that the euro will drop against the dollar by 10% in the Trump's victory case. Goldman Sachs said on Tuesday the euro could fall as much as 10% - implying a drop below $1 from current levels - in a scenario in which Donald Trump imposes widespread tariffs and cuts domestic taxes if Trump wins the Nov. 5 U.S. presidential election. A scenario in which Republicans win the presidency and Congress would act as stimulus for the economy. Goldman Sachs analyst Michael Cahill said the Republican team is expected to impose a 10% U.S. tariff on all imports and a 20% levy on Chinese products, combined with tax cuts. The euro last traded at $1.083. It last traded below parity in November 2022. Both measures would likely push up inflation, implying significantly higher interest rates in the U.S. than Europe that would boost the dollar's appeal. A narrower trade war, in which Trump only imposes further tariffs on China, could see the euro fall by around 3%, Cahill said. "A Democratic sweep or divided Democratic government would likely result in some initial dollar downside, as markets reprice the prospect of more dramatic changes in tariffs." The euro has dropped 2.7% so far in October, as the U.S. economy has pulled away from Europe, and as some investors have positioned for higher tariffs after a potential Trump victory. https://lnkd.in/dganWFnM