US Watch – Trump Day 1: Executive order galore

Yesterday, Donald Trump was inaugurated as the 47th President of the United States. As pre-announced, he wasted no time in enacting his agenda through executive orders. There were few surprises on the policy front. Universal tariffs were not yet announced, but Trump did give a short timeline for possible tariffs on Mexico and Canada, surprising markets. Other measures are largely related to curbing (illegal) immigration, fighting inflation (predominantly through energy prices), reducing the government footprint, and a general unwinding of Biden policy by reversing 78 of his executive orders.

While Trump did not formally impose any tariffs, both the universal tariff and the 25% tariff on Mexico and Canada are still top of mind.

He plans to enact the tariffs to Mexico and Canada by February 1st. The two countries are vital for US energy and auto imports, but the economic damage to them would be far more severe than to the US. Both Canada and Mexico said they’ll retaliate against American goods if they were to be hit by tariffs. We still see this predominantly as negotiation, with a low likelihood of these tariffs actually being implemented this way. The universal tariff, a campaign promise, is also still on his mind, but Trump stated they are ‘not ready for that yet,’ adding that implementation could be ‘rapid.’ Europe could also be the target of tariffs, but these could be averted if Europe buys more US oil. He also said he might slap China with tariffs if a deal is reached on TikTok – which received its own executive order – and China doesn’t approve it. Some further measures were contained in the America First Trade policy, including the establishment of the ‘External Revenue Service,’ which essentially would do the work the Customs and Border Protection is already doing. Consistent with the delayed implementation of tariffs, he demoted ‘tariff’ to his fourth favorite word, after God, religion and love.

A wide variety of packages is meant to deal with illegal immigration, headlined by the declaration of a national emergency at the US-Mexico border.

He ended birthright citizenship, although this appears to be legally questionable. Beyond that, his orders aim to realign the refugee program, and increase the military’s role in protecting the ‘integrity of the US’. Many of the orders are interrelated with illegal drug trafficking, with Trump also not ruling out military operations across the border in Mexico. On the other hand, Trump expressed support for legal immigration, emphasizing the need for workers when companies relocate to the U.S. to avoid tariffs.

Trump sees energy as the biggest contributor to inflation, and therefore declared a national energy emergency.

In an effort to reduce inflation, he signed a directive ordering every department to ‘address’ inflation. He sees his own role predominantly in reducing energy prices, returning his ‘drill, baby, ill’ mantra. This was enacted through, for instance, an order to ‘unleash’ energy exploration in Alaska, and eliminating the Green New Deal and ‘electric vehicle mandate’.

An effort to reduce the government footprint is spearheaded by Musk’s Department of Government Efficiency.

Trump formally created the department of about 20 people, to be led by Musk, tasked with reducing government spending by USD1 trillion. He also ordered all federal agencies freeze all pending regulations, although this is standard practice for any incoming president. In addition, departments were told to stop facilitating remote work arrangements, possibly to encourage resignations and reduce the government workforce.

Notably absent was the mention of the extension of tax cuts.

Although it was never likely that tax cuts would be enacted on day one, he also failed to mention them in general discussions. Other points of note were the withdrawals from various global initiatives, including the Paris Climate Agreement and the World Health Organization, similar to actions in his first Presidency.

Overall, Trump’s first day offered no game-changing surprises on the economic policy front. Tariffs surprised to both the up- and downside. The rapid timeline for tariffs on Mexico and Canada was unexpected, but global tariffs seem less immediate. At the same time, this means that trade policy uncertainty is likely to remain highly elevated for an extended period. Immigration policy focused on the expected angles, and has the potential to have a large macro impact, given how important the role of labour supply has been in recent economic growth. While the focus on energy as a means to combat inflation is predictable, it is not clear he will be successful, and even if successful, it is too limited to effectively address present, and future tariff-induced, inflationary pressures. We have no reason to believe that the major points of tax cuts and universal tariffs are off the table, and policy-induced downside risks continue to loom over the US economy.