U.S. Policy Outlook: Trump, tariffs, taxes, trade, and more

KARI GRANT: There was a split Congress-- or we went from a split Congress and now we don't have a split Congress. And so Trump does very much feel he has a mandate. He also has the ability in some respects to act on that mandate. Can you tell me a little bit about what you think his initial priorities will be? And which of those does he need to go through Congress for and which of those can he execute on his own?

CHARLES MYERS: Yeah, so I'd say, again, we should be expecting really far reaching change in this country. The single biggest change is we are going to shift rightward politically. We're also going to undergo some pretty transformational deregulation around the economy. And third, the other big change is the United States is about to become much more protectionist. I think those are the biggest changes at a high level.

First, on the domestic agenda, it's really three things. The three biggest priorities. Taxes, deregulation, and immigration. On taxes, we think that almost all of the Trump tax cuts that expire next year will be extended. There's even the real possibility, and as someone who lives in a blue state in New York, I feel very strongly about this, that we may get some SALT relief. We may get the SALT cap lifted or the cap doubled, the amount you can deduct doubled. Although we have been hearing there could be an income threshold for that.

But more broadly, and I think more importantly for the country, extension of most of the Trump tax cuts that expire next year and also the possibility of a new corporate tax, taking corporate tax from 21% not to 15%, which is what Trump ran on, but maybe it's 18%, 19% as a compromise.

Because to your question, Kari, the one area where Trump does need Congress is on the tax extensions or any new tax cut. He does have a majority in both. But in the House, it's going to be a two seat majority, an even slimmer majority than what the Republicans have today in this current Congress. So there will be the need to compromise. But having said that, we expect really pretty far reaching tax reform or further, not only tax cut, but tax extension.

On the rest of his agenda. He doesn't really need Congress. And he will through executive orders that are being prepared as we speak and be implemented essentially on day one. Inauguration is January 20. So day one is Jan 21. Pretty far- reaching executive orders on deregulation and immigration. On dereg, it's mainly financial services and energy. Again, I think it will be transformational.

We're going to roll back parts of Dodd-Frank. Banks will be able to do a lot more than they-- engage in activity they've been somewhat prohibited from for a while. We're also going to see a new regulatory framework for digital assets. It's much bigger than just Bitcoin. It is really digital assets and even fintech, I would argue, more broadly. We're also going to see a lot of innovation in that space.

And then on Basel III, Europe is moving full steam ahead to implement it on January 1. We've already suspended it and we're going to get rid of it. We're going the other direction. We're going to be reducing or lowering reserve requirements, capital requirements for banks. So I think that we're going to see a fair amount of dereg in financial services, including the real possibility, or at least they're going to try, to reprivatize Fannie and Freddie or the GSEs.

In energy, it's really everything from rolling back environmental protections. On day one, we will pull out of the Paris Accords. We will suspend all of our climate targets, none of which were realistic anyway. But in addition to rolling back environmental protections, I think the Trump team will also accelerate permitting, lower the cost of drilling, mainly through lowering the fines and other penalties that the oil and gas companies pay.

But also and even more transformational in a way, I think, is opening more Federal land and waters to drilling. So I do think that we're going to see some pretty big change there. The main objective in this, and this is Trump's number one domestic priority, even more important than taxes and immigration, it is to enable the United States to produce ultimately 3 million barrels more per day, which would be a 20% increase from where we are today. 3 million barrels of oil additional per day over the next couple of years. A very important priority. And the objective is not America's energy independence. We are already essentially energy independent. It is to bring down the price of oil structurally.

Privately, we have two very senior contacts on the Trump transition team. Privately, they talk about oil in the high 40s. I think that's ambitious. But just to say that President Trump won this election on cost of living. One of the most effective ways to lower the cost of living is to bring down the price of oil, which brings down the price of heating oil and, more importantly, gasoline, which affects almost every American household. So they're very serious about this issue. And I think that we will see them do this.

And lastly, on immigration, we will see deportations. Again, he doesn't need Congress for this. We think it'll be about 400,000-, 450,000 people in the first year. It will be disruptive in some pockets of agriculture, food processing and hospitality. More in Texas and Florida, because that's where we're going to see the most deportations. The Democratic governors of California and Arizona are going to resist and try to block or slow down the deportations. So I think because of that, we're going to see more people literally physically being deported from Texas and Florida, again, causing a little more disruption in some of those sectors or some of those parts of the economy.

But just to say that as one last thing, as part of this energy dereg, they are also going to repeal, and he will need Congress for this, but repeal parts of the Inflation Reduction Act. Most at risk is future funding around the EV subsidies or the EV tax credit, possibly residential solar, and certainly any funding for wind, geothermal, and hydrogen I think is all on the chopping block. Part of the reason to repeal parts of the IRA is to help pay for the tax cuts. So again, there's a real objective in this, not only a pullback from ESG and climate, but also a revenue as kind of a way to help pay for or offset tax cuts.

We are going to see pretty important and far reaching transformational change for the US economy, almost all very positive, I would argue. I think the equity markets are absolutely right to be rallying. And keep an eye on Elon Musk. He's the second most powerful person in America. And I think the DOGE committee is going to find at least half a trillion dollars of spending cuts because, like most big governments, we have an enormous amount of waste.

KARI GRANT: Yes. So it might be easier to say what's not going to change on January 20. But you made a couple of points there that I want to bring Jack in a little bit too, because we've had some conversations about the equity market rally and how long this tends to last. And then how does the policy embed after a new president takes the White House? Jack, do you have any sort of thoughts on timeline, on how long we might see this rally, and any changes we might anticipate in the next couple of months?

JACK JANASIEWICZ: Yeah. If you go back to 2016 and just look at how the market reacted back then to today and I think a little bit different, because 2016, obviously, we woke up with a surprise. I think the market started to price in the Trump victory look at the betting market odds in September. So the timeline doesn't exactly match up. But if you do match up the timelines as to when the market was really comfortable with beginning to price in a Trump victory, you're following that same blueprint.

But the interesting point, I think, is that if you look at what happened in 2016, come inauguration day, a lot of these trades either kind of stalled out and traded sideways or actually started to roll over. So at some point in there, the market fully discounts a lot of this stuff or we get a little bit more detail. And you could make the argument maybe, as you heard some of these interviews with Scott Bessent about implementing of tariffs, it's not going to be 60% on day one.

It's incremental increases, that sort of thing. OK, maybe it's not quite as bad. So the market's starting to rethink some of this. So these trades certainly aren't going to run forever. And we potentially already could be seeing some of that kind of petering out in here in this last week or so. So again, don't overstay your welcome on some of this stuff.

But as Charles pointed out, some of this is going to have long- standing ramifications. And I would say the big one for us, deregulation is going to be a big one. And just the simple idea of unleashing the animal spirits, so to speak, that's a tough trade to handicap specifically. But I think that just puts in for a pretty good backdrop in general. And that should be supportive across the board.

KARI GRANT: Charles, let's start with tariffs. We see those as a priority on day one, and where does he start on that? And where do you think we end up and what do you think could impact that?

CHARLES MYERS: Yeah, I think on tariffs, one of the things I always say about President Trump, one of the really good things about him, is he actually tells you what he's going to do and then he actually does it. There are a few exceptions, and I think that tariffs might be one of those exceptions. Meaning that, in fact, on the implementation of tariffs, I think the threat will be greater than the reality.

And again, partly because, and I think Scott Bessent put it best on this when he described the strategy around tariffs, which is to escalate to de-escalate. Part of that meaning to threaten to try to get the counterparty to do what you want, whether it's controlling fentanyl at the border, controlling aliens at the border, getting the Europeans to lower the tariff they've charged on US cars into the EU. Whatever it is, to use it as a threat to see if you can get the counterparty to do what you want or at least some of what you want and then follow through with tariffs if they don't or don't do enough.

And so I do think on China, what we're going to see is certainly not 60% tariffs. It would be massively disruptive to supply chains, not to mention incredibly inflationary. Instantly inflationary, in fact, because all the consumer goods that we import from China. But instead, a more gradualist approach with threats that are higher, but in reality, maybe 10% increase and more selectively by product as opposed to a blanket across the board.

And part of the reason for being more gradualist on China is that the Trump administration, first of all, wants it to be less disruptive. But secondly, they want to leave the door open to be able to negotiate with China on a variety of issues. On Mexico, Canada, I would put the tariff threats in those two instances really even more in the bucket of threats versus reality. Again, partly because of the USMCA, which there are waivers. You can still impose tariffs. But I think in the end, Mexico and Canada are going to play ball.

And then lastly, where we think we might see the most punitive tariffs initially out the gate with executive orders, meaning in the first three months, is against the EU, particularly European autos. It's a number one target. The average tariff on a US car into the EU is 30%, 3-0. The average tariff on a European car into the US is 3%. That trade asymmetry will have to be addressed. I think President Trump is right on this.

I think there's also going to be tariffs on European steel and aluminum, possibly luxury goods, maybe airbus. But anywhere there's a trade imbalance, the Trump team really want to do two things. Address that asymmetry or the imbalance, and secondly, they also view tariffs as an important source of revenue to help pay for the tax cuts and other parts of the agenda. So I think on tariffs, it's a mixed bag. And I think in reality, it will be less aggressive than the threats. But we're a little more worried about the EU initially.

KARI GRANT: And Charles, does he have authority to enact those tariffs? Do you expect legal challenges to those tariffs?

CHARLES MYERS: We don't expect any challenges, certainly from Congress, which would be the main challenger. The president has currently five, in fact, there's even an argument he has a sixth, different authorities through which he can, through executive action, impose tariffs.

What's happened is Congress over the years, this started long before even Trump won, Congress has increasingly ceded the authority around trade policy to the executive. And so the executive uses a variety of national security and/or balance of payments or other authorities. And therefore, the president can put a tariff on any good from any country, any day, and he can also take them off.

And lastly, there had been some talk that he would go to Congress for some of the blanket tariffs. Because in order to do-- partly to answer your question, to do a blanket, either 10%, 20%, or 60% tariff across the board, he would require congressional approval for that or he would have to declare a state of emergency, which we don't have.

So we don't think he's going to want to cede the authority to Congress, because then he'd have to go back to them to ask Congress to lift tariffs. So he will do this without Congress. We were in DC on Wednesday seeing members from both sides. They have no intention of challenging the president on tariffs.

KARI GRANT: So one of the things you both mentioned, I think, was deregulation. And we're seeing maybe some signs of that in the nominees that you mentioned who come from the industry and might have that sort of perspective on the regulatory front. Could you explain how that might manifest itself? Obviously, Basel hasn't been implemented, so that's a little easier. But what about things that have been implemented? Could you just explain that process and maybe that timeline a little bit on things that might get rolled back from this administration or previous administrations?

CHARLES MYERS: Yeah, I'd say a couple of things. So first, Scott Bessent's 3-3-3. We're going to hear a lot about 3-3-3. And they're even calling it the Mar-a-Lago accord now, which is, I think, giving it a little more importance than it deserves, at least this early. But the 3-3-3 is very important because it is literally the main targets or objectives of this administration over the next two years.

Because, again, one of the biggest differences today with Trump, too, is they have four years of experience. He and his team, these are very experienced people. And the transition team is very professional. They actually met the morning after the election in Mar-a-Lago and got started. So they're going to hit the ground running. They already have. They're going to really hit the ground running Jan 21.

So on the 3-3-3, it's 3% GDP growth for the economy. I think that's achievable. It's aggressive, but I think it's achievable with enough tax cuts, tax cut extension, maybe a new corporate tax cut, but especially dereg. Both are very reflationary. The other 3 is 3 million additional barrels a day. Again, that will take probably more than two years, but I think is possibly doable, but they're certainly going to work towards it.

And again, to your question, they're going to start with some of these executive orders on day one, especially rolling back environmental protections, lowering the cost of drilling. And even, I don't know on day one, opening more federal land to drilling. But certainly within the first couple of months.

And the other 3 is to bring the budget deficit down to 3% of GDP. That is not going to happen. So I applaud every effort towards working towards that goal. But we're already over 6% of GDP. And while I also am optimistic and enthusiastic about what Musk and team are going to do with DOGE, we're not going to bring the budget deficit down to 3%. But those are kind of broadly the parameters of what they're thinking.

And lastly, the way Bessent describes it, and I think it's a really good way of thinking about it, is kind of reprivatizing the US economy, really pulling back and removing through executive action a lot of regulation that is just bogging down and slowing down the economy, particularly in financial services and in energy.

KARI GRANT: Jack. What's your reaction to the 3-3-3? I mean, do you think this seems feasible?

JACK JANASIEWICZ: No, this is great. I was going to actually ask Charles this question at some point in there. The problem that I have is on the oil production side. Because if you go back and look at 2015, '16, we had that same game being played by the oil companies where they flipped over and started to really try to tackle volume. And the equity market hammered their stocks, because the return on equity just went down the tubes.

And so I think they learned a pretty good lesson there where it's not really about that volume game, so to speak. It's about managing profitability for their shareholders. And so I kind of question the ability for all this sort of rolling back of a lot of the red tape. Will the oil production side really bite on this? Simply because it's still a game of profits for them. And so they want to control some of this in that sense.

And again, we're basically looking at privately held companies here as opposed to state run entities that have maybe a different sort of perspective here. So I kind of question the ability for that to happen. I don't know if you've got a different take or some insight onto that, Charles. I'd love to hear that.

CHARLES MYERS: Yeah, I would say that I think where the incoming administration is getting the most pushback is on the 3% deficit of GDP. And I understand that. But the second most pushback is on this. Can they really encourage the US oil and gas companies that are, as you said, very focused and have been, rightly so, on capital discipline and returning capital to shareholders? Can they really convince them or entice them to actually explore and drill more?

I think that what is maybe underappreciated is actually how much the overall cost of drilling, which includes environmental protections, but also fines. There's very high methane emission fines, for example. And also being given access to a lot more federal land to drill as well. I think if you combine all of that, there is the possibility of bringing down the overall cost of drilling, both drilling and exploring and drilling. And I think we could see volumes pick up. But whether we get to 3 million additional barrels per day, as I said, I'm a little unsure of, but I know they're going to try.

And so the way to play it is not through the majors. It's really through the service companies. And one area I'd be very cautious on, given how serious this is, Trump's number one domestic priority, I'd be very cautious on the shale companies, because you can't have a lower price of oil and a vibrant shale industry. But I do think you can have more exploration and drilling.

And I think there will be an increase not only in the permitting process, but in finding more funding for refining, because one of the bigger areas that we want to, as a country, increase output is on the natural gas side. So I think it's also addressing some of the bottlenecks at the moment on the refining side. We'll see how they do. Again, they're very serious about it. Even if we only increase by another million, million and a half, it's still a pretty meaningful increase.

JACK JANASIEWICZ: The one side that I'm actually very optimistic on is that 3% growth target. It sounds like it's quite aggressive in comparison, but I think maybe the one thing that's underappreciated in here, not just from the policies that are being put forth from Trump, but it's rather productivity gains that we've been slowly seeing. And I think that's beginning to really start to show.

And we spend a lot of time looking through the third quarter earnings transcripts and really talking about, OK, are we starting to see the payback from AI? Because we're hearing all this investment. But right now it's got to be where the rubber hits the road. You can have all this money you spend. What's the good of it?

And I was shocked at how many companies are in their third quarter earnings commentary commenting about how AI has saved them money, whether it be inventory management to just finding different sources of additional incremental revenue, whatever it may be. There are a lot of companies out there talking about that. And productivity has been sort of on the upside. And the question has always been, is it sustainable?

If this is the tip of the iceberg that we're seeing in terms of companies reaping the benefits of AI investments, we could be in for a longer run here where productivity continues to stay elevated, if not reaccelerate. And that's the key, I think, to getting that growth rate higher. So we're quite optimistic that that 3% growth target actually might not be that far fetched.

CHARLES MYERS: I totally agree with that. And I think the other thing that we will see is a very big wave of M&A across many sectors, not just in financials. I think as you cut back regulation and you also have a more pro- growth administration and one that's less focused on the antitrust part, which Biden was very focused through Lina Khan and others at the FTC, very focused on antitrust. I think you're going to see a wave of M&A in financials, in energy, certainly in energy, but even in pharma and big tech. So I think that all of that also will contribute. But this is a very reflationary program and something they can do with a Congress that's very much on board with it.

KARI GRANT: Sticking on the tech theme, so there's various aspects of that you brought up in your introductory statements around crypto. But then we also have separately big tech and then we have AI. How might the approach of the incoming administration differ on all of those things? It seems like folks are really, really bullish on crypto. I've been getting lots of different questions from folks around whether or not it's a regulatory perimeter or we actually see a strategic Bitcoin Reserve. What's your prognosis on maybe each of those spaces distinctly?

CHARLES MYERS: Well, I think that this is-- I'll put it differently. To say this is a very pro digital assets, pro crypto administration is an understatement. President Trump opportunistically is there because he raised a lot of money from the crypto industry. And again, it's bigger than just crypto. It is digital assets more broadly. In fact, I think we're going to see a lot of innovation in that space, including more broadly fintech and even payments.

But staying with crypto, to be fair, JD Vance has been there all along. JD Vance was the sponsor of probably the most comprehensive crypto regulation bill that really died in the Senate. I think that gets revived. So I think between Congress that is very likely to pass a crypto regulation bill next year, led by Cynthia Lummis in the Senate, but it is also very bipartisan. Combined with the fact that the Trump team are going to ask for the resignation of the chairs of the five top regulators on day one, ex the Fed, means that we're going to have a much lighter regulatory framework across not just crypto, but financial services more broadly. Gary Gensler has already announced he's stepping down.

So I think it's real. The issue is that cryptocurrencies don't trade on fundamentals. They trade on news flow and sentiment. And so to your last question, we are not going to be buying Bitcoin and creating a crypto or digital currency reserve any time soon, because it's not a-- the volatility in those cryptocurrencies is just too great.

But I do think that we will see meaningful improvements, innovation, and especially around safe custody. One of the biggest obstacles to institutional adoption has been this lack of or very big challenge around safe custody. I do think the big banks are going to ultimately be able to figure that out and provide that, and we're going to see meaningful institutional adoption over the next four years as well.

KARI GRANT: Well, one last policy area I want to definitely touch on. You mentioned this earlier, tax and spending. We talk about the TCJ being extended.

Are there any obstacles to that? Or do you think it's just additional campaign promises will face obstacles? Because folks will be concerned about the cost of those promises. It's another something like 2.5 trillion on top of the 4.6 trillion or something like that, that the previous cuts were estimated to cost. So do you expect that there will be some pushback from folks who are sort of deficit hawks in the House?

CHARLES MYERS: Yeah, I'd say a couple things on that. One is both parties are equally guilty of running up the deficit, meaning both parties when they're in power are equally guilty of abandoning fiscal responsibility. And when they're in the opposition, they suddenly get religion on fiscal responsibility. I think that the current Republican majority, again, both in Congress and in the White House, is probably not going to be an exception to that. I think part of their hope of bringing down or cutting spending is through the DOGE committee and what Elon and Vivek are going to find. And again, there's quite a bit they can find.

But overall, given that the priority, again, one of the top three domestic priorities is both extension of tax cuts and new tax cuts, unless they can really fund it through partial repeal of the IRA and revenue from tariffs, we're looking at the deficit going up. Tax cuts in this country and in any country do not pay for themselves. It's a Republican and conservative myth around the world. Tax cuts are incredibly stimulative and positive and helpful in many other ways, but in this country, especially, have to be deficit financed in the short term.

So I think that on spending, we will find some cuts. But the truth is, if you extend all the existing tax cuts that expire next year, and if you were to cut the corporate tax to 15, we're looking at an additional $6 to $7 trillion of cost over the next 10 years. Very, very challenging.

So last quick point is, I do think with the slim majority in the House, they're going to have to compromise. And so, again, it may be around income thresholds for certain extensions. I think there's going to be much bigger pushback on the corporate tax cut than consensus believes today. We heard that consistently from Republicans in Washington last week on the Hill. And again, maybe no corporate tax cut or 21 to 20 even. But yes, it will be challenging.

But if I can, one last quick point. I'm very optimistic on the Trump administration, on what they're going to do coming in. I agree with Jack, the equity market feels a little-- it's gotten a little frothy. What worries me more is when we look out to later next year. Because we have the real possibility of both inflation picking up and the deficit going up. And I say that because tighter immigration policies, tariffs, and this reflationary domestic economic agenda is inflationary in aggregate.

At best, the Fed is higher for longer, if not raising rates late next year. And the deficit will go up faster than what the CBO is currently projecting and therefore what's currently discounted. So in the short term, again, and maybe slightly medium term, very positive for the economy.

KARI GRANT: Yeah. Great segue into a question that I wanted to hand over to Jack, which is to just give us a few thoughts on the markets, a quick market update on what's going on right now and what you foresee in the near term.

JACK JANASIEWICZ: Yeah, maybe one other comment in terms of just comparing Trump 1.0 to 2.0. Starting points matter. I didn't talk about this earlier. But you think about where we were coming into 2016. You had US GDP was decelerating from I think it was a little around 5% down to about 2 and 1/2. The Chinese local equity market just had a 50% correction. So you're looking at coming from a low base, you had fed funds that think 75 basis points just coming off the 0 lower bound. I want to say the 10 year was sub 3%.

So the ability for the economy to trough and then reaccelerate, the ingredients are certainly there. Very different than where we are today, because you're coming in at a slowing level. You've got tens at 440, 430, fed funds at 475 with a marginal cut coming. So the point here is you have a lot more, I think, of a headwind in terms of getting the ability to remain easy and reaccelerate relative to where we were in 2016.

So that I think also makes it a little bit more of a challenging background on top of TEs 22, 23 times today versus I think 17, 18 back then. Obviously, the deficit not even close to where we are, debt to GDP, much lower, that kind of stuff. So keep in mind, the starting point is very different today. So I think that also makes it a little bit of a challenge.

But listen, we're still quite optimistic from a couple of perspectives. And maybe just thinking about it from the 60,000 foot view here. You've got what we call the Powell Put. Any market slowdown in the economy, at least in the interim, probably going to be met with potential rate cuts. And then you've probably got what we call the Trump Put. He's going to be one eye is always on the stock market. And so if things are heading south for him, I'm going to guess he's going to be somewhat reactionary to that.

So like we just talked about, pro growth, pro reflation.

These are necessarily not bad things going forward in here. So I think the table is set for a pretty good year for the economy, and that should spill into corporate earnings. And as Charles said, it's just there are risks as we move out as to how good things get, because too much of a good thing in here might lead to reflation inflation. And the fed might have to step back in here and maybe try to cool things off again.

But we think of things as sort of in a range. You probably have a floor, and that's the idea that there's a fed put and a Trump put. But there's also a ceiling, because if things get too good, the bond market's probably going to react accordingly. And you could very well see tens potentially moving above 5%, and I'm sure the equity market would not like that.

CHARLES MYERS: Can I add one thing to Jack's? I totally agree with that. This administration's also going to be very nimble. And if the tariffs prove to be either inflationary and/or disruptive to supply chains, they will course correct. This is going to be an administration that's very market responsive.