If the Republican majority in the House of Representatives is confirmed, we would face an overwhelming Republican wave, with the Trump presidency and control of the Senate and the House of Representatives by the same party, which would be the first time that this situation has been happening since Ronald Reagan.
This total control over the executive branch (Government) and the legislative branch (Congress) is only guaranteed for two years. In 2026, elections will take place. mid-termwhere one third of the Senate and the entire House of Representatives are elected. We should therefore expect an avalanche of legislative measures to implement the Republican program over the next two years. After said period, Neither the president nor the Republican Party will be assured of having the support of Congress for their new measures.
According to messaging in recent weeks, the priorities of the new Trump administration will focus on: extending tax cuts that expire at the end of 2025; and introduce new tax cuts, particularly for families; curb illegal immigration; and ease regulation of many sectors such as oil, finance, automobile and telecos; Investments in nuclear energy will be revitalized and accelerated, while current subsidies for renewable energy may be limited.
One of the Republican Party’s proposals is the approval of the Reciprocal Tariff Act, which aims to apply to the United States’ trading partners at least the same customs duties as those applied to American products exported to these countries. According to the analysis accompanying this proposal, the average rates supported American products represent 6%while the average duties applied to imported products are 3%. Regardless, imposing higher tariffs on certain products, such as European cars, is a no-brainer.
The aggressiveness of customs tariffs on China will go much further, up to 60%. Chinese investments in overproduction of many geopolitically important products and materials, such as steel, are seen as posing a security risk to the United States. The Republican Party believes that the new administration cannot allow China to implement dumping in the sale of its steel, causing the closure of steel factories around the world and in the United States, even though steel is essential to the security of the country, particularly for the military industry.
The demand for increased defense spending from NATO’s European partners is justified. 2% of GDP in defense spending for NATO members becomes an inexcusable minimum, with the target being above 3%.
The first reaction of different financial assets reflects what investors discount:
– The initial strong rise in American stock markets. It cuts taxes, reduces regulation in sectors and implements more business-friendly policy. In fact, the Russell 2000 index, which includes small and midsize companies, rose more than 5% on the first day after the election.
– Interest rates on 10- and 30-year US Treasury bonds saw sharp increases, up to 4.4% and 4.6% respectively. Behind the move is a larger government deficit, as tax cuts and spending increases are approved without opposition in Congress, and a higher inflation forecast is due to the imposition of 60% tariffs. on China and the rest of the world. lower amount, as well as measures to prioritize local production over imports (America first).
– The dollar has strengthened considerably. The explanation for this movement lies in the anticipation of less room for maneuver on the part of the Federal Reserve to lower interest rates by the amount that was expected. reduced until before the elections. The foreseeable rise in inflation will limit the intensity and number of interest rate cuts.
– Bitcoin hits all-time highs. Last July, Trump said at the annual Bitcoin conference in Nashville that the United States should have a strategic reserve of Bitcoin. To this end, he reasoned that the seized bitcoins should not be sold, as other countries like Germany or the Biden administration itself have done.
– Although gold initially fell after the election results, it remains at levels near all-time highs. The inevitable increase in public debt and the predictable monetization of part of this debt support its price.
– European car manufacturers such as BMW and Mercedes-Benz initially suffered sharp price cuts due to anticipated tariffs in the United States.
– Energy companies exposed to renewables in the United States, such as Iberdrola or Acciona, also suffered sharp initial declines due to fears of reduced subsidies to the sector and a less favorable regulatory environment.
Financial markets tend to overreact, both up and down, to surprising news, even generating good investment opportunities. In any case, after this first reaction, we will have to wait for the markets to calm down to draw a more serene assessment.
Between November 5 (election day) and January 20 (inauguration day of the new president), there are 76 days. In a world as turbulent as today’s, news and events can emerge during this extended period.of a geopolitical or even judicial nature, which cause additional volatility on the financial markets.
