What Trump’s second term means for taxes, economy, and foreign policy

Donald Trump’s re-election to the White House marks a pivotal moment in US policy, with plans for significant economic, tax, and foreign policy changes.

After securing 295 electoral votes and a strong popular mandate, Trump is set to implement a bold “America First” agenda with sweeping implications for American households, businesses, and international relationships.

Here’s a closer look at what his second term might bring.

Trump’s economic priorities: bold goals and potential challenges

Tax cuts and tariffs

Trump’s plan includes substantial tax cuts and broad tariffs on imports, aimed at boosting American manufacturing and consumer spending.

• Expanding tax cuts: Trump intends to make the Tax Cuts and Jobs Act (TCJA) permanent, cut corporate tax rates further, and eliminate taxes on tips, Social Security benefits, and overtime pay. Additionally, he’s proposed tax-free status for professions like police, firefighters, and military members.
• 20% tariff on all imports: Dubbed as an economic “great wall,” this broad tariff seeks to protect US jobs by reducing dependency on foreign goods. Economists warn, however, that it could add approximately $2,600 annually to the average American household’s spending, as goods become more costly.

Projected effects on the economy

• GDP impact: The International Monetary Fund (IMF) projects that Trump’s tariff policies could reduce the US GDP by 0.8% in 2025, with further economic drag expected in 2026.
• Mixed economic outlook: While Trump’s supporters anticipate increased American production and jobs, critics caution that these policies could drive up inflation, especially amid high US debt levels.

Wall Street’s response: initial surge with potential for volatility

Trump’s victory has been met with enthusiasm on Wall Street, with bank stocks and the S&P 500 rallying in response to expectations of deregulation and a business-friendly environment.

Short-term optimism vs. long-term concerns

• “Trump trade” is back: Investors are betting on gains in sectors such as banking, fossil fuels, and private equity, as they anticipate reduced regulatory constraints.
• Tariff concerns: Although the stock market’s initial response is positive, global companies may face disruptions as tariffs increase the cost of international goods, which could affect profitability.

Financial professionals are keeping a close watch on how Trump’s policies might create both opportunities and risks for American companies with international supply chains.

Trump’s tax policy: IRS reforms and reduced audits

Trump’s tax policy is set to include not only cuts but also substantial changes to IRS enforcement and auditing practices, emphasizing taxpayer services over strict compliance.

Proposed IRS reforms

• Reduced IRS enforcement: Trump’s administration aims to cut back on audits, especially those targeting middle-income Americans. This change contrasts with the IRS’s recent $80 billion budget increase under the Inflation Reduction Act, which aimed to boost enforcement, particularly among high-income earners.
• Enhanced taxpayer services: While Trump plans to scale back IRS audits, he intends to strengthen general taxpayer services, although some experts worry reduced funding could slow IRS modernization efforts and increase processing times.

Impact on taxpayers and tax professionals

These IRS cuts may bring relief to taxpayers concerned about audits, but tax professionals could face longer wait times for filings and potentially encounter delays in IRS operations.

Foreign policy and trade: heightened tariffs and realigned alliances

Trump’s foreign policy continues his “America First” approach, with an emphasis on tariffs, a redefined role in global alliances, and a willingness to engage in economic relationships with non-traditional partners.

Key foreign policy goals

• Increased tariffs on China and Europe: Trump has proposed a 20% tariff on European imports and potentially up to a 60% tariff on Chinese goods, with further increases if US-China tensions escalate.
• Reduced military aid and focus on US allies’ financial commitments: Trump’s foreign policy includes re-evaluating the US role in NATO and reducing aid to countries like Ukraine unless allies contribute more financially.

US-BRICS relations

In a shift that could impact US-European alliances, Trump has expressed openness to building economic ties with BRICS countries (Brazil, Russia, India, China, and South Africa) as they explore reducing reliance on the US dollar.

For American businesses, this realignment could mean a range of new economic risks and opportunities as trade routes and partnerships adjust.

Trump’s second term: winners and losers across industries

Trump’s policies could impact industries differently, creating winners in traditional sectors and potential challenges for newer ones.

Benefiting industries

• Fossil fuels and manufacturing: Trump’s deregulatory agenda is expected to benefit fossil fuel industries as well as manufacturing, with policies designed to boost American energy production and roll back environmental restrictions.
• Financial services: Wall Street, private equity, and financial services may thrive under Trump’s looser regulatory stance, potentially driving mergers and acquisitions activity.

Challenged sectors

• Renewable energy: Trump’s emphasis on fossil fuels over green energy may slow growth in renewable sectors such as wind and solar.
• Industries reliant on imports: Companies with significant supply chains abroad may face increased costs from tariffs, complicating their ability to maintain profit margins.

Trump’s legal considerations: personal wealth and ongoing cases

Following his win, Trump’s net worth has grown by nearly $300 million, partly due to increased support from influential allies.

However, legal challenges, particularly at the state level, remain an ongoing factor in his second term.

Trump’s immunity and legal challenges

• Federal immunity: As a sitting president, Trump may have immunity from federal prosecution, although this doesn’t extend to state cases.
• State cases in New York and Georgia: Trump’s re-election could complicate or delay several high-profile cases, while a possible self-pardon may bring about a constitutional debate.

These legal complexities could play a significant role as Trump navigates his second term.

Final thoughts: a transformative second term

Trump’s second term promises ambitious policy shifts, including major tax cuts, regulatory rollbacks, and an assertive foreign policy.

As his administration focuses on American manufacturing, reduced regulation, and tightened global alliances, both supporters and critics will be closely watching the impacts on economic growth, inflation, and international relations.

For US taxpayers, financial professionals, and businesses, Trump’s policies may create new opportunities and challenges.

Stay tuned as we cover these developments and provide insights into the evolving landscape.