He’s already started with a bang, but what will be the impact of this second Trump presidency on different sectors of the US economy? Wealth manager Quilter Cheviot’s research analysts have shared their insight with us, covering the consumer sector, the green economy, tech, energy, retail, luxury goods, autos and healthcare as follows:
Chris Beckett, head of research at Quilter Cheviot:
The consumer sector faces significant uncertainty with the potential renewal of the 2017 Tax Cuts and Jobs Act, commonly known as the Trump tax cuts. While President Trump may feel a strong attachment to these tax cuts, their renewal requires congressional approval, not just presidential endorsement.
Tariffs are another critical factor that could impact individual consumer sectors and companies. President Trump aims to incentivise onshoring and boost US production without triggering inflation – a challenging task, as companies are likely to pass on the cost of tariffs to US consumers if possible. This is particularly problematic for goods that cannot be produced domestically, such as Scotch whisky and tequila, where tariffs would simply lead to higher prices for consumers. Company lobbyists face the difficult task of conveying this to key decision-makers in the new administration.
Tariffs on Mexican production, where companies have leveraged lower costs to enhance profitability, present additional challenges. For instance, Mondelez moved a significant portion of Oreo production to Mexico over a decade ago. Adjusting supply chains in response to potential short-term tariffs is impractical, and raising prices will be difficult, especially if competitors have not offshored production.
Moreover, tariffs pose a broader risk to many companies. Trade disputes between the US and countries like China, Mexico, and Canada could lead to a cycle of retaliatory tariffs involving the EU and the UK. While free trade has benefited both companies and consumers, any disruption to trade – similar to the effects of Brexit – may be politically popular but could ultimately result in a lose-lose situation.
GREEN ECONOMY
Gemma Woodward, head of responsible investment, Quilter Cheviot:
Given that Trump has adopted the mantra of ‘drill, baby, drill’ and the actions he has taken since coming into office, it is safe to say that the outlook for the green economy looks uncertain within the US. The decision to exit the Paris Agreement for the second time will leave the US as one of only four countries that are not signatories – the others being Iran, Libya, and Yemen. If the US is not part of this – and remember by the time the US exited last time it was just months before the US rejoined under President Biden – then one has to question whether other countries will feel empowered to exit as well.
There are, of course, global impacts too – for example, European wind companies took a hit to their share prices following the announcement that President Trump was suspending offshore wind leasing. However, there is a clear bifurcation between the US and Europe/UK governments – we have seen this clearly in their approach to sustainable investment. For example, US asset managers have been under pressure to exit climate-related collaborations, while the EU and UK have introduced regulations to promote sustainable investment.
TECH SECTOR
Ben Barringer, global technology analyst:
We are already seeing the impact of Trump’s administration on the technology and AI sector, with many of the large tech companies changing tack since Trump’s second term in office was confirmed. Tech companies have been lobbying Trump’s administration for more favourable treatment in areas such as tariffs, AI regulation and antitrust regulation, and we can expect to see this continue. Meta, for example, has made changes to its fact-checking process under the guise of returning to ‘free expression’. The changes are not as significant as some headlines would suggest, given that safeguarding measures remain in place, but it amounts to lobbying all the same.
The Stargate Project also sets the tone for AI progression over the coming years. The expected $500bn backing is hugely significant and marks an escalation in the AI arms race. This ambitious project is undeniably a boon for the AI sector. Companies involved in supplying the technology and infrastructure for Project Stargate are well-positioned to benefit significantly. The move underscores the increasing strategic importance of AI innovation, further solidifying its role as a cornerstone of economic and technological advancement. For investors in the AI space, this announcement highlights a wealth of opportunities as the competition to dominate the sector intensifies.
ENERGY SECTOR
Maurizio Carulli, energy and materials analyst, Quilter Cheviot:
President Trump will facilitate authorisation for new oil and gas exploration and production in the US. However, how much energy companies use the additional flexibility will much depend on their capital expenditure plans, which will continue to be led by expected returns and shareholders’ distribution policies.
As far as the oil price is concerned, on the one hand, a possible increase in US oil and gas production may have a lowering effect, but on the other, possible additional sanctions on Iran, Russia and Venezuela might well push oil prices upwards. And, of course, future Opec+ decisions are going to be important too.
RETAIL SECTOR
Mamta Valechha, consumer discretionary analyst, Quilter Cheviot:
The retail sector could face significant challenges under President Trump’s policies, particularly if tariffs lead to higher prices. This scenario would likely exert pressure on lower-income groups, negatively impacting discretionary spending. As these consumers are forced to allocate more of their budget to essential goods, retailers may see a decline in sales of non-essential items.
Additionally, the potential for mass deportation of migrants could further strain the retail sector. Such actions would likely squeeze the labour market, leading to increased labour costs and contributing to inflation. Retailers, already operating on thin margins, may struggle to absorb these additional costs without passing them on to consumers, exacerbating the financial strain on lower-income households.
LUXURY AND SPORTSWEAR SECTORS
Mamta Valechha, consumer discretionary analyst, Quilter Cheviot:
The luxury and sportswear sectors are poised to experience varied impacts under President Trump’s policies, primarily due to their distinct supply chains and sales exposures. The luxury sector, with its predominantly European production base, faces uncertainty regarding the implications for European-based businesses. Historically, however, a rally in the US stock market and cryptocurrency has generated a positive wealth effect, boosting consumer sentiment. Given the luxury sector’s strong pricing power, we anticipate that any tariffs imposed will be passed on to US consumers. This could potentially incentivise US consumers to shift more of their luxury purchases offshore to Europe to capitalise on any regional price differences.
In contrast, the sportswear sector, which heavily relies on Asian production hubs, including China, presents a different scenario. Adidas has confirmed that it does not produce in China for the US market, and Puma has stated that it is “well-positioned” to manage potential US tariffs. However, Nike, with an 18% exposure of its supply chain to China, may face more significant challenges. The sector’s reliance on Chinese production underscores the complexities of navigating potential tariffs and trade disputes.
AUTOS SECTOR
Mamta Valechha, consumer discretionary analyst, Quilter Cheviot:
The autos sector is likely to face significant challenges under the new Trump administration, particularly with the anticipated rollback of policies implemented during the Biden era on electric vehicles (EVs). These policy changes are expected to create increasing headwinds for US EV demand and production, potentially slowing the growth of this critical segment of the market.
More concerning, however, are the potential tariffs on Mexico and Canada. Over 20% of cars sold in the US are built in these two countries, and they supply approximately 16% of the parts used in cars manufactured in the US. Tariffs on these imports could disrupt supply chains, increase production costs, and ultimately lead to higher prices for consumers. This could also impact the competitiveness of US-manufactured vehicles in the global market.
HEALTHCARE SECTOR
Sheena Berry, healthcare analyst, Quilter Cheviot:
The healthcare sector is facing a period of uncertainty with the nomination of Robert F. Kennedy Jr. to lead the U.S. Department of Health and Human Services (HHS). In the run-up to the election, there was little discussion on healthcare reform from the Republican party, adding to the unpredictability surrounding future policies.
During President Trump’s first term, the Republican party was unsuccessful in repealing and replacing the Affordable Care Act (ACA) and in lowering drug prices through measures such as the Most Favoured Nation Model. If President Trump decides to pursue more meaningful drug pricing policies or legislative changes during this term, it could significantly impact the pharmaceutical sector.
RFK Jr.’s nomination has introduced additional uncertainty due to his controversial views on vaccines, his critical commentary on the FDA, his desire to ban drug commercials from television, and his interest in cutting National Institutes of Health (NIH) research funding. However, RFK Jr. has recently moderated some of his views and shown a willingness to compromise on key issues. If his appointment is finalised, some of the near-term uncertainty may begin to clear.
