Why Trump 2.0 could be an economic disaster

By Jeremy Warner

Nevermind Ron DeSantis throwing in the towel, when even Jamie Dimon, the combative JP Morgan boss, speaks up for Donald Trump you kind of know that not only is Trump’s nomination as the Republican presidential candidate now a foregone conclusion, but it’s also essentially over for the White House incumbent, Joe Biden.

The titans of Wall Street are by tradition nearly always Democrat-supporting, and so at least until recently was Dimon. But in an interview last week at the World Economic Forum in Davos, he seemed almost to switch sides.

Donald Trump’s nomination as the Republican presidential candidate now looks to be a foregone conclusion.
Donald Trump’s nomination as the Republican presidential candidate now looks to be a foregone conclusion.Credit: AP

“Take a step back, be honest,” Dimon said. Trump “was kind of right about NATO, kind of right on immigration. He grew the economy quite well. Tax reform worked. He was right about some of China. He wasn’t wrong about some of these critical issues”.

Dimon then went on to warn against ridiculing Trump’s Make America Great Again mantra, because lots of ordinary Americans believe in it and it is discourteous to demonise their views. Now there’s a banker looking to grease up to – sorry, build bridges with – the likely winner.

There’s still nearly 10 months to go, and a lot can happen in that time, not least that Trump could be sent to jail.

In any case, polling this far ahead of the event tends not to mean a great deal.

All the same, Trump seems to have unstoppable momentum, and if you aren’t already thinking about the implications for the economy and markets of a second Trump presidency, then you had better start sharpish.

The difficulty is that, as is his way, Trump hasn’t yet said an awful lot about it. Beyond “drill, baby, drill”, stop the migrants and slapping a universal tariff on imports, he’s been decidedly unforthcoming about what he would actually do to stop the economic rot, as he sees it.


His economic message is mainly vacuous bluster. Perhaps just as well, because in practice, the US economy isn’t doing too badly anyway. Best not be too specific about its faults and how to correct them, because looking at the US, and comparing it to Europe, things look pretty good.

What we do have to guide us is a voluminous Project 2025 doorstopper of a report from the Heritage Foundation on what the new president should be doing in his first 180 days in office, and what should guide him in general in pursuing a “conservative” based policy agenda.

JPMorgan chief Jamie Dimon is reading the Trump tea leaves.
JPMorgan chief Jamie Dimon is reading the Trump tea leaves.Credit: Bloomberg

Beyond platitudes this is, unfortunately, not particularly instructive on the macro side of things either. Its 900-plus pages deal mainly with the importance of getting like-minded people into key positions, and then slimming down and reforming the institutions of government so as to pursue an unashamedly pro-enterprise agenda.

That, and dismantling Biden’s green initiatives, together with a massive expansion in oil and gas infrastructure. Fairly predictable stuff, in other words.

Even the section on reform of the Federal Reserve scarcely excites. “At a minimum,” one of the contributors writes, “full employment” should be eliminated from the Federal Reserve’s mandate, “requiring it to focus on price stability alone”.

Furthermore, the Fed should not be allowed to incorporate “environmental, social, and governance factors into its mandate”.

If he fails to grip the deficit, the sugar rush won’t last.

The Fed’s lender-of-last-resort functions, “which are directly responsible for ‘too big to fail’“, should meanwhile also be curbed. As for the pursuit of a central bank digital currency, you’ll be surprised to learn that this too should be axed.

But hold on, what’s this? “The Treasury should make balancing the budget a mission critical objective,” suggests the Heritage Foundation, which claims to have been highly influential during Trump’s first term.

Plainly not on this particular issue, however, for this is a president who likes to cut taxes, and as he once put it, “prime the pump”, an expression which he oddly claims to have invented himself. Fiscal and monetary stimulus is in his DNA; balancing the budget is, I imagine, a very long way from his current thinking.

Assuming he goes ahead with the 10 per cent import tariff plan, he will admittedly have quite a lot of revenue to play with for tax cutting purposes. This, however, is something of a zero-sum game, for any tariff on imports is essentially a tax on consumers. What they gain with one hand they lose with the other.

Trump getting back into the White House would be good for Wall Street.
Trump getting back into the White House would be good for Wall Street.Credit: Reuters

Those who bet heavily against Trump the first time around – on the basis that his policies were economically illiterate, if not outright offensive to liberal sensibilities – did not come out of it well. After an initial wobble, both the stock market and the economy surged, this despite the chaotic nature of the presidency.

We can expect a similar response this time. A full on deregulatory and tax cutting agenda? From a business perspective, what’s not to like?

Liberally minded investors should be careful not to let their distaste for Trump’s style confuse their judgement on whether he’ll be good or bad for business. In the short run, he’ll be good for the stock market, and good for business.

But if he fails to grip the deficit, the sugar rush won’t last. Unfunded tax cuts will only further weaken the US’s already parlous fiscal position, feeding inflation and ultimately threatening dollar supremacy as the global currency of choice.

I’m not sure I agree with Jamie Dimon that Trump was right about many of the critical issues, but nor do I think he was or will be a disaster for the US and the world.

The danger is of a vengeful and isolationist Trump, which is not what an increasingly dangerous world needs right now. But I’m not at all sure that’s what we are about to get. We’ll find out soon enough.

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