U.S. policy under Trump: What investors need to know

President Donald Trump’s second term in the White House has brought a barrage of executive orders, along with an extremely aggressive approach to trade policy that has raised concerns about a potential resurgence in inflation.

Current tariff proposals are significantly larger in scope than those put in place by the first Trump administration in 2017. Then, the focus was almost entirely on China. This time, it includes nearly all U.S. trading partners. In 2017, only a few specific products were targeted—most notably aluminum and steel. The scope is much broader this time around.

The situation is fluid, but, at this juncture, even the most moderate version of Trump’s proposals would represent a significant increase from the effective tariff rate that was in place at the start of the year.

We should not assume that the ultimate goal of negotiations is to reduce tariff rates in aggregate. The administration has clearly expressed a desire to use tariffs to bring manufacturing back to the U.S. However, it is not clear if they hope to bring back manufacturing in targeted industries or more broadly.

Tax and fiscal policy is another area of focus. Republican majorities in the Senate and House of Representatives suggest that expiring tax cuts, passed during Trump’s first presidential term, are likely to be extended. Whether a further reduction in the corporate tax rate can make it through Congress remains to be seen, as do the specifics of any potential cuts in government spending.

In this dynamic environment, a top‑down understanding of the interplay between government policy, the economy, and the outlook for different asset classes can be especially powerful when it’s combined with deep insights into industries and individual companies in the U.S. and beyond.

The following table highlights some of the key policy areas we’re watching and some of the possible implications for asset allocation.

Policy considerations and investment playbook

Tariffs

What we're watching

• If the Trump administration’s tariffs were to persist for an extended period, they could threaten the resiliency of the U.S. economy and global growth while stoking fears of inflation.
• Disruptive trade policies could put pressure on central banks to make the uneasy choice to cut interest rates despite the risk of higher inflation, which is most pronounced in the U.S.
• The tariff hikes could prove temporary in instances where the administration and trade partners can reach a deal. Long, drawn‑out trade negotiations would increase headline risk and market volatility.
• Rising geopolitical tensions also pose a risk.

Potential implications

• (—) The unprecedented level of trade uncertainty increases the risk of volatility and could warrant caution on equities.
• (—) Should the trade war persist, the U.S. economy could face significantly more risk than the rest of the world—a relative headwind for U.S. equities.
• (—) We are cautious on emerging market assets. A slowdown in global trade could weigh on corporate earnings in these export‑focused economies and add to pressure on local currencies and fiscal management.
• (+) We see relative opportunity in international value and international small caps, especially in regions where fiscal spending is increasing and where monetary policy is still dovish. European and UK equities look attractive in this regard.
• (+) Floating rate bonds could be relatively appealing because of their shorter duration.¹
• (+) Cash offers relatively attractive yields, stability, and liquidity. Longer‑duration U.S. Treasury bonds offer an attractive hedge against recession, but the outlook for Treasuries is clouded by concerns that tariffs could result in elevated inflation.
• (+) Signs of any de‑escalation on tariffs would be viewed positively in affected markets.

Tax and Fiscal Policy

What we're watching

• By and large, the tax cuts from Trump’s first term are likely to be extended, resulting in further deficit spending.
• The already elevated budget deficit and need for congressional support could make it hard to pass further corporate tax cuts.
• That said, potential tariff revenue, government efficiency initiatives, and concerns about the U.S. economy might open the door for some tax reductions and business incentives.

Potential implications

• (—) Increased issuance of U.S. Treasuries to finance deficit spending could lead to upward pressure on yields.
• (+) Small caps and value stocks could benefit if corporate tax rates were cut further, although potentially slowing economic growth is a risk.

Immigration

What we're watching

• Stricter immigration policies could tighten the U.S. labor market, putting upward pressure on wages and prices later in 2025 and beyond.

Potential implications

• (—) Concerns about a resurgence in inflation could drive significant volatility in stocks and bonds. Such a scenario would also warrant caution on intermediate‑ to longer‑duration assets. Small caps would also be more vulnerable to rates rising or remaining higher for longer.
• (+) Floating rate bonds could be relatively appealing because of their shorter duration. Equities linked to real assets, such as energy and metals, historically have acted as a hedge against inflation. Still, economic weakness would be a concern for oil and industrial metals.

Deregulation

What we're watching

• Trump’s first‑term record suggests that regulatory burdens will be reduced, cutting business costs.
• After his first term, the number of pages in the Federal Register, which tracks the flow of government regulations, fell sharply, from over 97,000 in 2016 to under 62,000 in 2017.

Potential implications

• (+) A more business‑friendly regulatory environment could favor smaller companies and value stocks. Both would be sensitive to economic weakness.
• (+) A leadership changeover at key federal agencies could bring a lighter touch to regulation and supervision of the financials sector.²

Energy

What we're watching

• Trump is likely to renew his push to reduce the regulatory burden on fossil fuels in his second term. Rolling back tighter emission rules and drilling restrictions advanced by the Biden administration would likely be on the agenda. Permitting reform could also place more of an emphasis on fossil fuel‑related infrastructure.
• The Trump administration could seek to curb spending on tax credits for electric vehicles and renewable energy that were included in the Inflation Reduction Act (IRA), a signature piece of legislation passed during Biden’s presidency.

Potential implications

• (+) A more supportive regulatory environment could help the oil and gas industry at the margin. However, significant growth in domestic hydrocarbon production could be a challenge because of industry consolidation and a maturing resource base. Economic weakness would be a headwind.
• (—) Companies in the electric vehicle supply chain could encounter demand headwinds. Utilities and renewable energy developers would also face uncertainties.

Health care

What we're watching

• Fears surrounding potential policy headwinds could weigh on investor sentiment toward the sector. At this juncture, it is difficult to tell the signal from the noise.

Potential implications

• (—) Potential cuts to Medicaid could be a headwind for managed care companies with more exposure to this market.
• (—) The pharmaceutical industry could face challenges if the administration takes an aggressive approach to pricing negotiations for certain drugs under the Inflation Reduction Act. Tariffs also create uncertainty.
• (—) Any funding cuts for agencies that give research grants and approve drugs represent headwinds for life science tools companies. Tariffs also create uncertainty.
• (—) Rising interest rates historically have been a headwind for biotech stocks, especially earlier‑stage companies.
• (+) Positive surprises on any of these fronts would serve as tailwinds.