With Donald Trump preparing to return to the White House, investors are closely monitoring the impact of a second term on the U.S. economy, financial markets, and Bitcoin. Trump's proposed economic agenda includes corporate tax cuts, deregulation, and increased import taxes—policies that could shift market trends, raise inflation concerns, and affect the Federal Reserve's monetary strategies. This anticipated direction has caused volatility in asset prices, from U.S. Treasuries to cryptocurrencies, as the market braces for a growth-focused but potentially inflationary environment.
Tax cuts and deregulation: Economic growth or inflation?
Trump's plan is to reduce the corporate tax rate to 15% for U.S.-based manufacturers, down from the current 21%. He argues that these cuts will boost U.S. businesses and support stock market growth.
If enacted, these policies could enhance corporate income and improve investor sentiment. However, critics warn that tax cuts could fuel inflation by increasing spending in a growing economy.
Broad tax cuts could also exacerbate government debt. Trump's proposals are estimated to add over $7 trillion to the federal deficit over the next decade. Rising debt, along with inflationary pressures, could force the Federal Reserve to reconsider its current interest rate easing, potentially complicating the financial outlook for businesses and consumers.
Tariff increases: Boosting the economy or supply chain risks?
In addition to tax reform, Trump's proposal to impose tariffs of up to 60% on imports from China and a broad 10% tax aims to protect the U.S. manufacturing sector. While this could support domestic production, it also risks disrupting supply chains and driving up consumer costs.
Deutsche Bank estimates that Trump's economic policies, excluding tariffs, could help U.S. GDP grow by 0.5%, although tariffs could offset half of that growth.
Implications for the Bitcoin and cryptocurrency market
As concerns about rising inflation grow, Bitcoin and other cryptocurrencies may attract attention as a hedge against eroded purchasing power. During Trump's first term, the cryptocurrency market experienced increased volatility, partly influenced by his outspoken views on the dollar and economic policy.
Rising inflation may reinforce Bitcoin's role as a 'digital gold', while Trump's management actions could reshape the cryptocurrency industry.
Wall Street has reacted to Trump's policies. The yield on 10-year Treasury bonds has reached its highest level in months, and increased volatility in stocks and commodities may follow. While the stock market could initially benefit from corporate tax cuts, concerns about rising debt and inflation could dampen optimism, making investors cautious.
