what to expect from Trump 2.0

“Although Europe initially took a back seat, the latest visit of Donald Trump in Parishe highlighted how defense spending and Europe’s role on the continent will once again become the center of US attention.” He underlines it Norman VillaminGroup Chief Strategist of Union Bancaire Privée (UBP)

what to expect from Trump 2.0

During his first mandate – explains the expert – Trump reproached the European leaders of the North Atlantic Treaty Organization (NATO) for not respecting the defense spending commitment equal to 2% ofthe GDP, as agreed in 2014. It took a decade for the NATO allies to finally reach this threshold.

Recognizing the renewed pressure, European Commission President Ursula von der Leyen recently called for an increase in defense spending above the 2% threshold. The appointment of Andrius Kubilius as the first defense commissioner of the European Union is also a symbol of a new European determination on this front.

From deficit to relations with Europe

However, Europe it may have less influence than, say, China in shaping transatlantic relations, given the strains that increased European defense spending will place on already strained budgets. But investors should not underestimate the prospect of a similar restriction for the incoming US president as well.

Although his party controls both houses of Congress, for Trump there is a risk that the budget problems that have recently hit the British and French governmentsand – after the respective elections in 2024 – can emerge again in the United States as well.

Indeed, Trump and Congress “will undoubtedly try to keep their campaign promises of lower taxes and increased spending, while trying to keep the U.S. deficit from expanding beyond what it has historically been. high 6-7% of GDP”.

Recognizing the fiscal excesses of the United StatesElon Musk and Vivek Ramaswamyconsultants to Trump’s newly formed Department of Government Efficiency, have outlined a plan to find $500 billion in annual savings within the federal budget.

While this appears to be a considerable sum, it represents only 25% of the budget deficit estimated for 2024 and only 7% of overall federal spending.

The UBP analysis

Achieving $500 billion in savings would be impressive in itself, given that most of these reductions would likely come from government “discretionary” spending, which amounts to just $1.7 trillion in 2023. This suggests that the new administration American will face high hurdles to find substantial cost reductions.

One’s perspective aggressive and creative reallocation of public spending seems likely, especially considering Treasury Secretary candidate Bessent’s focus on fiscal sustainability and Office of Management and Budget candidate Russell Vought’s focus on reducing federal bureaucracy.

Foreign and fiscal policies are not the only areas of focus for the new administration. The appointment of Robert Kennedy Jr as head of Trump’s health agenda seems destined to upset the “Big Food” companies and perhaps even the “Big Pharma”, with possible changes in the regulatory landscape of both sectors.

However, slim majorities in Congress and other more pressing legislative priorities will push the timing of large-scale changes beyond 2025.

Markets, which scenarios

With just four years left for the last term of Trump as president and with congressional majorities secured for just two years, Trump will likely have to imitate Silicon Valley’s famous mantra of “move fast and break things” as he seeks to redesign America and the world order.

For the ininvestors, Potentially such rapid changes should bring not only opportunities but also risks. THE bond and stock marketsi, however, are currently pricing the opposite.

Therefore, it will be crucial to adopt active rather than passive investment strategies and invest in companies resilient able to withstand not only such rapid transformation, but also the prospect that the changes will not occur smoothly. At the same time, assets like gold, hedge funds and others alternative strategies they will be valuable components of portfolios to contain periodic episodes of increases in volatility in 2025.