Strategists weigh up impact of second Trump presidency despite guilty verdict

Donald Trump may be the first former US president to be convicted of a crime, but that does not appear to have ruled out the chances of him returning to the White House.

When Joe Biden, today’s US presidential incumbent, was busy developing relationships with foreign leaders, his electoral rival, Donald Trump was overseeing The Apprentice TV show and its celebrity version. An adoring audience watched him curating colourful interactions featuring musical legend Dionne Warwick, talk-show host Arsenio Hall and Incredible Hulk actor Lou Ferrigno.

For many, this 13-year political advertisement – for which Mr Trump says he received upwards of $214m – smoothed his way to presidential power. Now the same observers are wondering whether latest events absorbing US media and viewers – featuring the first ever criminal conviction of a former president – will lead to his downfall, or election to a second term.

Around two thirds of voters have said a guilty verdict in the Manhattan ‘hush money’ trial would have no impact on their vote in five months’ time. But that leaves a significant cohort, who may be reluctant to back a convicted felon in the polling station.

Greater global entanglements

Economic commentators predict a Trump presidency would likely see expansion of his 2017 tax cuts, including cuts on individual taxation, business expense policies and larger estate tax deductions. While fiscal favouritism might stimulate some businesses, Mr Trump’s foreign policy – generally not of concern to US voters – may prove the negative factor which actually dents family balance sheets.

“The most damaging effects on the global economy relate to risk premia increasing cost of capital and lowering risk appetite of companies to make longer-term investments,” says David Bailin, CEO of CIO Capital Partners and until recently chief investment officer of Citi Global Wealth.

“Trump would be far less likely to support aid to Ukraine and even Israel, increasing economic burdens on the EU. This could potentially extend the time of these conflicts and broaden risk of greater global entanglements.”

US policy to Chinese exports could also be affected. “Trump would be likely to expand tariffs against China, impacting US price stability,” believes Mr Bailin.

The Republican candidate’s plans to demolish state bureaucracy could have major impact on society and economics, bearing in mind the Heritage Foundation’s Project 2025 and the Center for Renewing America are preparing for a Trump second term.

“Their likely goal is to dismantle the ‘administrative state’ to allow greater control by the executive branch over functions like the FDA (the federal agency regulating food and drugs) and SEC (Securities and Exchange Commission), that can have profound economic implications, including delays in processing routine business matters in DC,” says Mr Bailin.

Inflationary policies

While both Mr Biden and Mr Trump have embraced trade protectionism to boost domestic manufacturing production and jobs, strategists at J. Safra Sarasin believe the ex-president has taken a particular hard stance on the trade deficit, believing it acts as a direct transfer of US wealth to surplus countries.

“A weaker dollar would help, and Mr Trump’s trade advisers are considering strategies to devalue the currency if they were to return to the White House,” says the Swiss private bank. “Yet the policy mix put forward is likely to deliver just the opposite, at least in the short term.”

Tariffs, tax cuts and strict immigration controls are all inflationary policies, likely to force the Fed to keep monetary policy tighter than it otherwise would. In the longer-term,  there is a risk that a new Trump administration – repeating previous behaviour – could undermine the institution’s independence, consequently hurting the dollar.

Despite predictions of harmful Trumpian economic intervention, analysts highlight specific sectors – particularly healthcare – which his policies could benefit.

“A Trump administration would likely take a softer line on antitrust regulation, which could allow more mergers and acquisitions activity in the healthcare sector. This is positive for investors,” says Paul Major, who manages the London-listed Bellevue Healthcare Fund.

Republican administrations also tend to be more supportive than Democrats of the Medicare Advantage additional benefits scheme, so a Trump administration would likely reduce pressures which plan providers are currently prone to. “This could boost the profitability of health insurance companies in 2025 and beyond,” adds Mr Major.

In addition, he expects outperformance of biotechs and healthcare stocks relative to large and megacap companies, with a Trump presidency driving appetite for M&A activity in this sector.

Republican risks

But there are also risks associated with the Republican approach, including increased scrutiny and legislation limiting partnerships between US healthcare providers and China, driven by national security concerns around “protecting key domestic industries”, according to Mr Major.

Some analysts describe US political divisions as a dangerous phenomenon, potentially driving the country towards decline. “The Trump verdict has two opposing reactions: justice served or witch hunt. Just listen to Fox News and MSNBC; one is from Mars, the other from Venus,” says Malik Sarwar, a former senior Asian private banker now running the wealth management practice at the Global Leader Group in New York.

“Every superpower has its Achilles heel. For the US, it is its extreme polarisation and growing ideological divisions. Historians will focus on the hubristic message of ‘Mission Accomplished’ by George W Bush after the successful overthrow of Saddam Hussain. Trump’s arrival has further eroded all norms of decency and adherence to the constitution.”

Whether US voters are concerned about decency is another matter, with most likely to compare candidates for financial impact on polling day. As The O’Jays sang in their ‘For the Love of Money’ theme song to Mr Trump’s Apprentice series: “Some people got to have it/Some people really need it.”