Regulatory Easing, Tariffs, Immigration Policies, Tax Reform, Fed Independence
Significant Impact Expected on China and Europe
Preparing for Market Changes Like Deglobalization and Multilateralism
Global asset management firm Lazard forecasted on the 6th that since the launch of the 'Trump 2nd Administration' in the United States, attention should be paid to five changes: ▲deregulation ▲tariffs ▲immigration policy ▲tax reform ▲and the independence of the Federal Reserve (Fed).
Ronald Temple, Lazard's Chief Market Strategist who authored the '2025 Market Outlook' report, said, "So far, we have advised focusing on corporate fundamentals regardless of the U.S. presidential election results," but added, "With President Donald Trump elected and both the Senate and House controlled by the Republican Party, the new administration will have considerable momentum."
The Trump administration is expected to significantly ease regulations across the U.S. economy, especially in the energy and financial services sectors. In the energy sector, it is anticipated that fossil fuel exploration and production will expand, and environmental regulations will be relaxed, leading to increased production. While increased supply may cause raw material prices to fall, demand could be boosted by increasing energy export permits. In the financial services sector, capital requirements for large banks are expected to be tightened, and the authority of the Consumer Financial Protection Bureau (CFPB) is likely to be reduced.
They also presented a scenario regarding tariff policy. If the U.S. imposes a 60% tariff on China and a 10% global tariff, the U.S. Gross Domestic Product (GDP) is calculated to decline by up to 100 basis points (bp) (1bp = 0.01 percentage points). Inflation could rise by more than 100bp, and the dollar is expected to strengthen.
While corporate supply chains will be affected, consumer goods companies are likely to suffer significant damage, whereas the energy, financial services, utilities, and real estate sectors are expected to be relatively less impacted.
The Trump administration's immigration policy is also expected to have a considerable impact on economic growth. It is pursuing the largest deportation of illegal immigrants in U.S. history. If 1.3 million workers are deported, the sharp decline in the labor force and consumers could cause U.S. inflation to rise by more than 50bp next year. GDP is estimated to fall by over 70bp.
Considering the plan to reduce the corporate tax rate from 21% to 15%, the S&P 500 index's returns could increase by about 400bp.
There are concerns that the president may exert influence over the Fed's monetary policy decisions. Attention should be paid to the new chair nominee to be appointed in May next year when Jerome Powell's term ends. If a successor who threatens the Fed's independence is appointed, monetary policy is likely to be politically influenced going forward.
U.S. policy changes are expected to affect other countries overseas as well. China is expected to implement asymmetric retaliatory measures and substantial fiscal and monetary stimulus in response to the U.S.'s tough tariff policies. The Eurozone may face difficulties due to U.S. trade policies and security pressures, which could lead to a weaker euro and rising import prices. Japan is in a favorable position regarding global supply chain changes, so the impact of U.S. trade policies will be relatively limited, but efforts will be needed to stabilize prices and the yen.
Chief Ronald Temple said, "This year will be one where new challenges and opportunities coexist," and emphasized, "Investors should not underestimate and must prepare for the situations where deglobalization, multilateralism, and geopolitical stability are shaken."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
