Contrary to conventional wisdom, former President Donald Trump won a second presidential term and the GOP secured control of the Senate and quite possibly the House of Representatives on November 5th. Business owners and investors may now be asking themselves how this unexpected result affects them.
Executive Action
There are several actions that a president can take that may affect investors and businesses. For instance, the president as the head of the executive branch can slow the pace of regulation or even in rollback regulations imposed by various federal agencies. For example, the President might reverse SEC requirements for climate related disclosures for public companies.
Deregulation. Based on his first term, we might expect that President Trump will proactively find ways to reduce regulations. During his campaign this summer, President Trump indicated that he would appoint entrepreneur Elon Musk as a sort of government efficiency czar. (It seems unlikely that his proposals for government efficiency will involve eliminating tax clean vehicle tax credits).
Antitrust Enforcement. Another area where we may see a significant change from the current administration is antitrust enforcement. Current FTC chairperson Lina Khan has been very aggressive in challenging mergers and acquisitions as anticompetitive. The FTC's litigation record challenging proposed mergers has been exceptionally poor during her watch, but the agency's aggressive enforcement efforts have had a chilling effect on M&A activity. It's safe to assume that Lina Khan will be replaced with a more business-friendly FTC chairperson who will be less inclined to challenge deals on novel grounds such as the welfare of employees, rather than harm to consumers.
Tariffs. President Trump recently stated "tariffs" is one of his favorite words. Tariffs are a tax on imports and a device to protect domestic industries from foreign competition. Some companies may benefit if they have a cost advantage over their foreign competitors due to tariffs. However, many companies will be negatively impacted by tariffs which add an additional cost to imported materials included into otherwise American made products. For this reason, tariffs will hardly be an unmitigated gain for American businesses. The imposition of tariffs on materials and inputs may disrupt supply chains and cause businesses to pass higher costs to customers.
USMCA. When President Trump renegotiated NAFTA he required the new US-Mexico-Canada Agreement to include a five-year review. That five-year review will now happen during President Trump's second term. Rather than being a perfunctory review, this may turn into a more substantive renegotiation. Whether that review and negotiation is conducted by President Trump on one side, and either Prime Minister Trudeau or his conservative rival Pierre Poilievre, remains to be seen. We may see similar uncertainty around agreements with other trade partners as well. Between new tariffs and precariousness around trade agreements, we may see some trade disruption.
Legislative Agenda
Beyond these ways in which the president can have a direct bearing on policy, most other areas of public policy will be determined by the US Congress. Now that it appears that the GOP will secure control over both chambers, business owners and investors should be asking what sort of legislative agenda the Republicans have for them.
Extending the TCJA; Curtailing the IRA
The one clear policy agenda on the minds of Republicans is extending the Tax Cuts and Job Acts tax cuts that were enacted in 2017 but scheduled to sunset in 2025. Beyond this, President Trump campaigned on additional tax cuts, but passing any further tax cut legislation will require building a legislative consensus
In addition to extending the TCJA tax cuts, Republicans may look to overturn portions of the Inflation Reduction Act which provided subsidies and tax credits for efforts to fight climate change. It is likely that there will be GOP efforts to eliminate or reduce many of these IRA subsidies and tax credits. One exception may be Section 45Q tax credits for carbon capture and sequestration. US oil and gas companies tend to support carbon capture and sequestration as a long-term strategy to reduce the impact of carbon emissions while sustaining the viability of the petroleum industry. So, the petroleum industry may lobby for the extension of those credits.
Beyond the tax code we will have to wait to for the GOP legislative agenda to be unveiled. Both parties in Congress have deferred to the executive branch in recent administrations rather than proceeding with a robust legislative agenda. Furthermore, the GOP may also be rather surprised by their good fortune on November 5th and not yet developed a full legislative plan.
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