The long-awaited US presidential vote took place last week, and the response was unequivocal: former president Donald Trump was re-elected for a second term, which will begin in January 2025. Trump is the second president to achieve this goal, of returning to the White House after spending a term out of office; his only predecessor was Grover Cleveland, who was the 22nd and 24th president of the United States, serving from 1885 to 1889 and then again from 1893 to 1897.
Trump won the electoral college (312 delegates vs 226 for Kamala Harris), the popular vote (with nearly 75m votes, i.e., 50.5% of valid votes, versus nearly 71m and 48% for Harris). The new Republican party under Trump has won a majority in the Senate (with 53 seats, taking 4 from the Democrats), and is very close of taking control of the House (with 213 seats, vs 218 needed for a majority; in 20 districts the votes are still being counted). The Republicans now also have a majority of Governors (27 vs 23 for the Democrats). And Trump also indirectly “controls” the Supreme Court, since he directly appointed 3 justices out of 9, with only 3 being nominated by Democratic presidents, and the other 3 being solidly conservatives (for a 6-3 majority in the Court on most matters).
The Democrats have lost 10 million votes since the 2020 presidential election that Joe Biden won with 81 million votes (51.3% of the total that year), while Trump has increased his votes only marginally (from 74.2m in 2020 to 74.7m in 2024).
What caused this Democratic debacle? First, the change in the candidate that took place only 107 days before the election date. Second, Kamala Harris did not have the charisma or the experience of Joe Biden. Third, the inflation spike that occurred during the Biden presidency scarred his otherwise enviable economic track record (of more than 13 million jobs created, and the strongest economy at the global level). Fourth, the Democrats were not able to intercept and interpret the malaise of the middle class, with the loss of its purchasing power, and of the lower class, with the competition it has faced from increased immigration. (More than 5 million of newly created jobs under Biden were for non-native US citizens).
Fifth, the Democrats have been identified with the establishment elite, while Trump, in spite of his wealthy origins and his first term as president, was still considered to be an outsider against the corrupt Washington system.
What are the likely consequences of Trump’s presidency? Much will depend on whether the Republicans take control of the House, and on which people Trump chooses to fill key positions, such as Secretary of State, Secretary to the Treasury, Defense Minister, and eventually Fed Chair. Much will also depend on whether he will apply Project 2025 or not, and on the role and influence that Elon Musk will have on this new administration.
The key objective of Trump’s presidency will be making tax cuts permanent, to be financed via a partial repeal of the Inflation Reduction Act, and by the tariffs imposed on US rivals as well as allies, along with other measures. These tariffs are likely to be inflationary in the US and deflationary for the rest of the world, given that their impact on economic activity will probably be larger than the impact of the likely appreciation of the USD versus other currencies. Trump will try to keep a lid on inflation by reducing the price of gas at the pump, via a massive increase in shale oil and gas production and an indefinite suspension of all green policies, as well as with a plan of massive de-regulation. All else being equal, the Fed will likely cut rates more slowly and/or to a lesser extent than would otherwise have been the case (starting in 2025). Other central banks (such as the BoE and the ECB) meanwhile will likely cut rates more and/or faster.
Equity markets (and bitcoin) and the Dollar index will initially soar, as will long-term rates. But higher yields and a stronger dollar will eventually hurt equity valuations, so we may expect a change of tack from the Administration when these second-round effects materialise. But this will be several months aways from now. We will have time to re-assess the situation between now and then.
