Mixed effects from Trump’s economic policies


  • Health care reform will be reformed
  • Tax cuts and infrastructure investments are likely
  • Political uncertainty and trade restrictions will offset fiscal stimulus measures...
  • ... but the net effect will be growth-positive

Donald Trump's presidential election victory, combined with the Republican majority in Congress, will lead to major changes in US economic policy. Now that the executive and the legislative branch of the federal government are controlled by the same party, the polarisation in Congress it is less important. President Barack Obama's administration had the same golden opportunity during its first two years in office. But there is still great political uncertainty, for various reasons. Which policy areas will enjoy priority, and to what extent will Trump try to push through his most outrageous and harmful proposals? Other questions are to what extent Trump can hope for the support of Congress, and to what extent he will actually need it.

During the election campaign, there was a focus on such policy areas such as large-scale tax cuts for private individuals and businesses and more restrictive trade and immigration policies. The Republican fixation on tearing up President Barack Obama's health care reform also played a key role, along with a conviction that the regulatory burden on companies should be eased. For many congressional Republicans, tax cuts, deregulation and the dismantling of "Obamacare" are closest to their hearts; early statements from Congress have indicated that both deregulation and reforming the health care reform are top priorities. Trump's anti-free trade campaign promises have no support from traditional Republicans, however, while the attitude of Congress towards immigration is mixed. But Trump will have wide-ranging authority to take action in the field of trade without congressional approval. In other fields, he will need support from some Democrats in the Senate. The Republicans' simple majority in the Senate will thus not be enough in every situation; amending laws and regulations generally requires having at least 60 Senators on board. In order to enact deregulation in the energy and financial sectors, Trump will thus need broader congressional majorities.

As for fiscal policy, the Republican Party's simple majorities in the House of Representatives and Senate will go a long way. The same applies to amendments in the
health care reform, but in that field the president-elect now suddenly seems far more willing to compromise, meaning that Obama's signature political legacy appears likely to survive at least in part. Changes in federal expenditures, including Trump's proposed infrastructure programme, can also become law with simple congressional majorities, but it is uncertain whether he can persuade Republicans to back these proposals
whole-heartedly. Yet the probability of infrastructure investments is high, since such a programme is generally supported by Democrats. Infrastructure investments were
among the few proposals that Trump mentioned in his victory speech. His most recent infrastructure proposal would cost USD 1 trillion over a ten-year period, equivalent to about 0.5 per cent of GDP yearly. We believe that such investments are probable, though in a trimmed-down version.

This is an extract from the November issue of the Nordic Outlook. To read more about this as well as latest market forecasts, download the entire report (pdf) or read the press release.