Now comes the Donald!

Donald Trump will take office as president next week.

people___profile_24_outline
Bernd Weidensteiner, Dr. Christoph Balz

Commerzbank Economic Research

01/17/2025

We analyze what measures can be expected on day one. His further plans are expensive. The risk of a strong reaction in the bond markets is rising.

Inauguration next week...

On Monday, January 20, Donald Trump will be inaugurated as the 47th President of the United States. Unlike eight years ago, the handover of power has been much better prepared. This should give Donald Trump a flying start. During the election campaign, he had already announced a series of measures for the first day, even though there is – as usual with Trump – diverging and sometimes contradictory information.

... Plans for Day 1

Right at the start of his second term, President Trump is likely to reverse a whole series of executive orders issued by his predecessor Biden. Such orders are an instrument frequently used by US presidents when they have difficulty getting their policies passed into law by Congress or when, in their view, swift action is required. Such orders have similar effects in principle to federal laws, but – unlike laws – they can be easily withdrawn by a new president. At the beginning of his term in office, Biden also rescinded numerous orders from Trump's first term. A change of administration thus makes it possible to quickly change policy in many areas.

Trump sees the high level of illegal immigration as the most pressing problem and has therefore promised to take immediate action against it. One of the first orders of business is likely to be tightening border controls. In addition, he could divert funds from the defense budget to border security by declaring a state of emergency at the border.

Rapid decisions can also be expected in the energy sector. In doing so, Trump is likely to reverse Biden's moratorium on new natural gas export licenses. It is also likely that he will again award significantly more drilling licenses for oil and gas exploration on federally owned land (27% of the US land area is owned by the US federal government; in Alaska – where oil production plays an important economic role – the figure is as high as 60%). However, US oil production is already at a record level, so a significant expansion of production also depends on the development of oil demand. Finally, Trump will rescind Biden's moratorium on new drilling projects off much of the US coast. However, this would initially be more of a symbolic act, since fossil fuel drilling is not currently taking place in most of the closed areas anyway.

It is possible that restrictions will be placed on offshore wind turbines. However, the direct impact of a moratorium should not be overestimated here either. In the US, only a relatively small number of offshore wind farms are in the planning stage, and many projects have been stopped due to escalating costs. Furthermore, Trump could order the US to withdraw from the Paris Agreement on climate change.

... and for the first few months

Even if tariffs are seen as a panacea for Trump, it will likely take a while before they are imposed. This is because the Trade Act of 1930, which authorizes tariffs to be imposed on unfair trade practices by trading partners and tariffs on imports relevant to national security, requires prior investigations. It would be faster if Trump declared a national emergency under the International Emergency Economic Powers Act (IEEPA). However, this law has not yet been applied to tariffs, and legal experts see a risk that this approach could fail in court.

In the long term, however, Trump is likely to impose tariffs or raise existing tariffs and is unlikely to limit himself to selectively raising some tariffs in critical areas. He has not only raised the prospect of tariffs to reduce the US trade deficit, but also as leverage to curb immigration and stem the flow of drugs. Furthermore, the threat of high tariffs is intended to deter the BRICS countries from developing an alternative to the US dollar as the world's reserve currency. In addition, tariffs were lurking in the background as an instrument in his foreign policy fantasies of expansion towards Canada.

The views pf Stephen Miran, whom Trump wants to appoint as the head of his Council of Economic Experts, might indicate the direction of travel in the longer term. In his publications, Miran has discussed the advantages of a general 20% tariff rate for the US; currently, the average tariff rate is only 2.3%. Ultimately, the tariffs are likely to affect imports from China in particular, while for other countries the threat may also serve as leverage to persuade trading partners to make concessions.

Another of Trump's key concerns is the extension of the income tax cuts that were agreed during his first term in office and are due to expire at the end of 2025. However, a corresponding legislative package, which may also include a further reduction in corporate taxes, is not expected until spring.

For full text see attached PDF-Version.