Donald Trump’s emphatic victory in the US presidential elections is a net negative for US risks in the medium run because it raises financial risk, although nearer-term implications for the economy are more mixed.
The second Trump administration is likely to push pro-business policies such as extending 2017 tax cuts and boosting spending, which would support American and global economic growth – with possibly favourable consequences for the economic outlook and debt issuance near term. Trump will also likely put pressure on the Federal Reserve to further reduce interest rates and pursue deregulation of the financial and other sectors.
However, a second Trump presidency carries the danger of polarising US politics even more, especially if the Republicans retain control of the House of Representatives – at the time of writing, the outcome hangs in the balance – having already retaken control of the Senate. A Republican-held Congress would give Trump freer rein in policy making.
A particular concern is trade. Trump’s campaign pitches of a hypothetical 10% across-the-board tariff on imports and 60% or above on those from China enhance the likelihood of trade conflicts and could make for a rise in credit premiums, notably in emerging markets. Likewise, the possibility that the US might halt funding for Ukraine’s defence against Russia and unwind alliances and involvement in multilateral institutions exacerbates geopolitical risk.
In terms of domestic economic policy, Trump’s plans are generally reflationary and may require tighter Federal Reserve monetary policy and higher global interest rates than otherwise needed. This could create extra economic volatility and financial-system risk medium run despite any near-term boost for the economy.
The election raises risk for the US rating
For the US sovereign credit outlook (rated AA by Scope Ratings), the election results raise risks. Even if Republicans regain simple majorities of both chambers of Congress, there is nevertheless likely to be a battle early in 2025 around lifting or suspending the debt ceiling as Republicans lack a filibuster-proof Senate majority amid Trump’s plans for extra federal spending and tax cuts.
Trump’s expansionary fiscal agenda, with his policies anticipated to add up to USD 4.1trn to USD 5.8trn to the budget deficit over the coming 10 years, would further weaken fiscal metrics. The implementation of more-protectionist and anti-immigration policies suggest longer-run brakes on economic growth, and likely higher inflation.
Finally, there is risk under the second Trump presidency of further weakening of US institutions, such as of the rule of law, further politicisation of the judiciary, challenges to the independence of the Federal Reserve, and acceleration of a gradual erosion of the dollar’s reserve-currency status.
Scope Ratings – the European credit rating agency – presents capital markets with opinion-driven, forward-looking and non-mechanistic credit-risk assessments, creating a greater diversity of opinion for institutional investors.
Recommended Content
Editors’ Picks
EUR/USD finds support near 1.0700, looks to post large daily losses after Trump win
EUR/USD trades deep in negative territory despite staging a modest rebound after finding support near 1.0700. The US Dollar preserves its strength as Republican nominee Donald Trump becomes the 47th president, while the improving risk mood helps the pair limit its losses.
GBP/USD trades below 1.2900 as Trump victory boosts USD
GBP/USD stays on the back foot and trades below 1.2900. The US Dollar outperforms its rivals and doesn't allow the pair to gain traction as Donald Trump completes his political comeback, becoming only the second US president to win a second, nonconsecutive term.
Gold extends slide toward $2,650, US yields surge higher as Trump claims victory
Gold remains under heavy bearish pressure and trades at a fresh multi-week low below $2,700 as markets react to Donald Trump's victory in the presidential election. The benchmark 10-year US Treasury bond yield rises more than 4% on the day, forcing XAU/USD to stretch lower.
Bitcoin soars to a new all-time of $75,407 as Trump wins US presidential election
Bitcoin soared over 7% to a new all-time high of $75,407 on Wednesday as Donald Trump was elected as the 47th President of the United States, the candidate that was seen as more favorable for crypto markets due to his pro-crypto stances.
Trump wins: Tax cuts come with a cost
Donald Trump’s victory will ensure a lower tax environment that should boost sentiment and spending in the near term. However, promised tariffs, immigration controls and higher borrowing costs will increasingly become headwinds through his presidential term.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.