Trump, Tariffs And The Fed: What Can You Expect

The Republican candidate Donald Trump is the president-elect after his victory against the Democrat candidate Kamala Harris. During his election campaign, Trump shared some details regarding his financial policy plans which seem to follow the pattern of policies implemented during his first tenure in 2016.  

In this article, we will review what president elect Donald Trump has said in regard to financial policies until now.

Potential US Tariffs Create Market Turmoil

One of Donald Trump’s main points during his campaign was that he aims to revive the US economy. He reiterated his belief that the country’s economy suffers because businesses tend to move their manufacturing plants abroad in countries such as Mexico and others, while China takes advantage of the situation to sell its products in the US market, cheaper than its US rivals. Trump has said that, in his opinion, this has cost many Americans their jobs leading them to unemployment.

In his first tenure that started in 2016 and ended in 2020, Trump imposed several tariffs on an array of imported products. After his inauguration on January 20th, he is likely to continue his first term policy that aims to make imported products more expensive. With this he believes that many businesses could move their production lines to the US, thus creating more jobs for US residents and strengthening the economy.

Will China Retaliate Over Potential US Tariffs?

In case the US government would impose additional import taxes to foreign products, it is no secret that China would be the main target. Chinese authorities are already bracing for impact as China has unveiled new measures aimed at boosting its struggling economy.

China’s president, Xi Jinping, congratulated Trump on his victory and said that the two countries must “get along with each other in the new era. A stable, healthy and sustainable China-US relationship is in the common interest of both countries and is in line with the expectations of the international community.”

For the time being, China seems that it will be taking its time to assess the situation. Its newly announced stimulus plan did not satisfy global markets as investors thought that it wasn’t powerful enough to stimulate the country’s economy. However, some say that the Chinese government may have acted like that in purpose until the new US president reveals his plans.

Despite Xi’s positive words, the reality seems to be grim. During his election campaign, the US president-elect said that he sees 10% tariffs on all goods imports – and up to 60% and 100% for China and Mexico respectively. Tariffs are expected to be imposed on many products such as cars, planes, food, technology to mention a few.

For example, Trump has said that “I want German car companies to become American car companies. I want them to build their plants here.” From their side, some companies like Airbus have suggested that they are ready to pass the extra costs over to the buyers, making purchases more expensive.

Mexican Worries About New Tariffs

The Mexican president Claudia Sheinbaum has pledged to pursue good ties with the United States which is Mexico's top trading partner. Sheinbaum also urged Mexicans to remain calm as "there is no reason for concern" right after Donald Trump’s victory. It is no secret that many businesses have been operating plants in the US’ southern neighbour, benefitting from low labour costs and taxation. Simultaneously, migrants coming from or passing through Mexico to head north will likely be a big of the two countries’ bilateral relation discussions.

The Mexican peso plunged in the aftermath of the US elections result announcement losing 3% of its value against the US dollar as investors and traders suggest that the new US president’s decision in regard to tariffs could hurt the Mexican economy. The Mexican peso continues to be subdued versus its US rival. Before the dust settled, Honda who owns a manufacturing hub in Mexico said via its executives that new tariffs would lead to higher costs noting that “maybe we would go for production elsewhere not subject to U.S. tariffs.”

Mexico's Economy Minister Marcelo Ebrard said that the Mexican government would take into consideration retaliating against potential US tariffs. On November 11th, he was quoted saying: “If you put 25% tariffs on me, I have to react with tariffs. If you apply tariffs, we'll have to apply tariffs. And what does that bring you? A gigantic cost for the North American economy.”

Goldman Sachs Says Other Asian Countries May See Tariffs Imposed

Goldman Sachs analysts recently highlighted that U.S. tariffs under Donald Trump's administration might not be limited to Chinese products, suggesting "burgeoning bilateral deficits could eventually prompt U.S. tariffs on other Asian economies."

In their note, they pointed out the potential impact on Korea, Vietnam, and Taiwan, which have experienced notable trade growth with the U.S. They also noted that "Asian trading partners might try to deflect attention... by shifting imports towards the U.S. where possible" to mitigate the effects of these tariffs on their economies.

Trump Vs Federal Reserve: Will There Be A Rift?

Another big question will be the relationship between Donald Trump and the Federal Reserve (Fed). The Fed’s head Jerome Powell was assigned the position, replacing Janet Yellen, during Trump’s first presidency. While some would expect the Powell-Trump relationship to be in good terms, Trump has had expressed his concerns over the Fed’s monetary policy decisions already from 2018.

The US president-elect seems to want to have a say when it comes to financial policies implemented by the Fed. In the past, Trump has asked for a low-interest rate policy coming in dire contrast with the Fed board “hawkish” moves. Some analysts suggest that Joe Biden’s successor could undermine the Fed’s independence, sending a wrong message to global markets. Speaking to Bloomberg in October 2024, Trump said: “I think I have the right to say I think you should go up or down a little bit. I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”

Jerome Powell is due to leave his seat in May 2026 with Trump implying that he wouldn’t support a potential second term. Just after Trump’s victory was announced and during a press conference, Powell was asked by reporters if he would step down in case Trump asked him to do so. The Fed’s head replied with a “no” adding that it wouldn’t be permitted by law.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.