Webinar recap: The first 30 days of the Trump administration

Executive summary:

• Proposed policies by the Trump administration on trade and immigration are likely to have the largest impacts on economies and markets.
• The Trump administration plans to extend tax cuts, but with the U.S. facing a significant fiscal deficit, the overall fiscal impact will probably remain neutral.
• The administration’s pro-business stance has boosted CEO confidence, with deregulation in finance and M&A activity expected to drive corporate expansion. While this supports investment and IPOs, the long-term economic impact of reduced oversight remains uncertain.

On Feb. 25, Russell Investments hosted a webinar examining how the new administration of U.S. President Donald Trump has impacted markets and economies in its first 30 days. The discussion featured insights from two Russell Investments experts: Chief Investment Strategist, Andrew Pease, and Senior Portfolio Manager, Olga Bezrokov. 

Below is a summary of their conversation.

How could tariffs impact the economic outlook?

Pease began by setting the scene with the broader economic context. Coming out of the COVID-19 pandemic and a period of aggressive monetary tightening, the U.S. economy remains on a path to a soft landing, with GDP (gross domestic product) growth remaining above trend, inflation declining, and the labor market stabilizing, he said. Despite this favorable backdrop, however, uncertainty around the policies of the new U.S. administration of President Donald Trump remain a key watchpoint, Pease noted.

 Next, Pease outlined several potential scenarios that could play out depending on the policy mix from the Trump administration. These ranged from extreme protectionist measures—which could trigger a global recession—to more moderate policies that could maintain stability.

Regarding tariffs, he noted the Trump administration has already announced a 10% tariff on Chinese goods and a 25% tariff on steel and aluminum imports. However, more impactful measures, such as tariffs on Mexico, Canada, and European automobiles, are under consideration. If implemented, Pease said these could significantly raise the U.S. effective tariff rate, potentially reducing GDP (gross domestic product) growth by 0.5% to 1% and increasing core inflation by 0.5% to 0.75%. The uncertainty surrounding tariffs has also led to a slowdown in corporate investment decisions, as companies wait for policy clarity before making long-term commitments, he added.

Bezrokov noted that investors are evaluating how tariffs may impact specific market sectors. Small-cap U.S. companies, which tend to have more domestic exposure, may benefit from reshoring trends, whereas large-cap firms with global operations could face headwinds, she said.

Bezrokov also said that market reactions to tariff announcements have caused short-term selloffs in affected sectors such as industrials and consumer discretionary stocks, leading some managers to seek potential opportunities amid market overreactions.

Immigration and economic growth

The discussion then shifted to immigration—another major policy focus of the new U.S. administration with significant economic implications.

Pease said that net immigration to the U.S. has surged in the years since the pandemic, approaching nearly four million per year in 2023. This provided a crucial boost to labor supply and consumer demand, he said.

Pease explained that the administration’s goal of reducing immigration to around 750,000 annually, combined with planned deportations of undocumented workers, could have widespread effects. In particular, labor shortages in key sectors such as construction and agriculture could drive wages higher, exacerbating inflation, he said. At the same time, reduced immigration could dampen consumer spending, potentially slowing GDP growth, Pease added. The extent of these impacts remains uncertain, as companies and policymakers navigate the changing labor landscape, he remarked.

Potential fiscal policy changes

Next, Bezrokov and Pease addressed potential changes to fiscal policy. Pease noted that the Trump administration aims to extend the 2017 Tax Cuts and Jobs Act, which is set to expire at the end of 2025. Maintaining these tax cuts would cost an estimated $4 trillion over a decade, he noted, adding to an already significant fiscal deficit of 6.5% of GDP.

To combat this, the administration has proposed spending cuts and efficiency measures to offset costs, but achieving substantial savings remains a challenge. The budget resolution passed by Congress includes relatively modest tax cuts, limiting the potential for further fiscal stimulus, Pease said. Consequently, he expects the overall fiscal impulse to be neutral in the coming years, meaning that fiscal policy is unlikely to provide additional economic support beyond the extension of existing tax cuts.

Bezrokov noted that fiscal policy will also have significant implications on interest rates and the Federal Reserve’s (Fed) policy stance. With current U.S. 10-year Treasury yields at around 4.5%, investors remain cautious about future rate movements. Given the current deficit and inflationary pressures from tariffs and immigration policies, the Fed faces a delicate balancing act, she said. While markets have priced in one to two rate cuts by year-end, the ultimate path of monetary policy will depend on how inflation and economic growth evolve, Bezrokov noted.

Deregulation and business confidence

Bezrokov and Pease shifted to their final topic of the discussion: the potential for deregulation. Pease noted that the Trump administration’s pro-business stance has fueled optimism among corporate leaders, as evidenced by rising CEO confidence levels. He noted that financial-sector deregulation, particularly the rollback of Basel III capital requirements, has been well received by markets. Additionally, reduced oversight of mergers and acquisitions is expected to stimulate deal-making activity, Pease said. Case-in-point: the Morgan Stanley CEO recently noted that the M&A pipeline he’s seeing today is the biggest in five to 10 years. This suggests that deregulation could support corporate expansion and market sentiment, Pease explained.

He said that despite challenges in quantifying the direct effects of deregulation, its impact on business confidence and investment decisions is evident. Sectors such as private equity and venture capital stand to benefit from a more favorable regulatory environment, potentially leading to increased IPOs (initial public offerings) and M&A activity. However, the long-term economic implications of reduced oversight remain a subject of debate, Pease noted.

The bottom line

Bezrokov and Pease concluded by noting that the economic and investment outlook remains highly uncertain due to the wide range of potential policy outcomes. While tariffs and immigration policies introduce inflationary and growth-related risks, deregulation and fiscal policy measures could provide offsetting benefits.

Given this uncertainty, the strategist team at Russell Investments has adopted a more conservative approach in portfolio positioning, reducing active risk and maintaining diversification. They stressed that the team is continuing to monitor key developments closely—particularly in labor markets, trade policy, and Fed policy—to navigate potential market volatility and identify investment opportunities. Ultimately, Bezrokov and Pease emphasized the importance of remaining flexible and data-driven in investment decisions.