In World War II, Germany pioneered a revolutionary tactic to spearhead an attack at a specific point in the enemy lines to overwhelm their defenses and create chaos. Donald Trump is taking the lessons of those battles and performing his own blitzkrieg as he re-enters office for a second term. Unlike his first term, in which he (admittedly) did not understand the scope of filling thousands of positions, he is now moving rapidly to install his people and push so many policies at once that it is difficult for Democrats to organize a defense. Many of these actions will affect economies worldwide, but keeping up with the list is challenging. Below, we look at several policies that will drive the next four years of Trump’s administration.

Tariffs

Despite being frowned upon by most economists, tariffs have provided the main source of revenue for the US government through long stretches of history, including over 90% of funding from 1790 through the Civil War in 1860. The 16th Amendment in 1913 gave Congress the authority to impose an income tax. Initially, this only targeted the wealthy. However, within three years this amendment drove the main source of government support. Donald Trump is now wielding this old tactic aggressively, limiting access to US markets for those who refuse to pay. His goals include fairness in trade, helping with border security, and encouraging manufacturing in the United States. Key actions so far include:

  1. 25% tariffs threatened on Mexico and Canada. This resulted in a sharp drop in equity markets, which quickly reversed as Mexico and Canada agreed to do more to secure their borders and fight the inflow of fentanyl into the United States.
  2. 10% tariff on Chinese imports across the board to address forced intellectual property sharing and restrict their access to American technology. This is part of a broader effort to re-shore American business. Recovering COVID-related costs, which Trump blames on the Chinese, is another reason stated by the administration.
  3. 25% tariff on Columbia unless they accept migrant flights for their citizens. Columbia quickly agreed. This provided an example to other countries who may be in line for deportations.
  4.  General tariffs on Russian imports to force negotiation on the Ukraine war.
  5. Various reciprocal tariffs, including to the EU. Many of these are meant to put US companies on the same competitive footing.

Responses include retaliatory tariffs from China on US coal and natural gas imports, investigations of US companies, and restrictions on the export of rare earth minerals used in electric vehicle production and other tech industries. Canada and Mexico agreed to enhance border security plans, with Mexico sending 10,000 troops to aid the effort. The EU, India, and others have not announced plans publicly but would likely add their own penalties to US imports.

Taxes

The 2017 Tax Cuts and Jobs Act was a signature achievement of the first Trump administration, but it is set to expire at the end of 2025. This 10-year limit occurred because it was passed through budget reconciliation, which required a simple majority to pass the Senate. In addition to keeping the lower tax rate for corporations, increasing standard deductions, and capping the deductibility of local real estate taxes, it also made it easier for companies to bring funds back to the US. It aimed to reduce incentives for moving headquarters to lower-taxed jurisdictions, which became commonplace in the years preceding his term. Innovative ideas to eliminate taxes on tips (which often get under-reported anyway) and not tax social security might be hard for Democrats to vote against, given the strength of the voting blocs that would benefit from the change.

Deregulation

Reducing regulations continues to be a focus of the new Trump administration. Through executive orders, several changes were put in place.

  1. Every new regulation must be offset with ten previous ones that could potentially be canceled. This updates the “one-for-two policy” of his first administration.
  2. Restored a $100 million threshold for regulatory impact analysis. The Biden administration increased this to $200 million and incorporated climate change and equity into the formula. This should simplify the review and approval of projects as they will be judged on a cost-benefit equation without subjective measure.
  3. The Office of Management and Budget is now in charge of regulatory review of new tax rules. Previously, the IRS and Treasury had wide autonomy to interpret the tax code passed by Congress. This should increase transparency in rulemaking and standardize the process.
  4. Through no less than five executive orders, Trump revoked rules on carbon emission and renewable requirements while making domestic production easier. This includes opening federal lands to drilling, speeding up approvals for refining, transportation, and leasing, and making permitting easier. He also lifted the ban on natural gas exports, which Biden had paused and fought in court to keep going.

New administration officials indicate a desire to streamline their departments, eliminate entire units of government, and reduce waste. A significant reduction in the number of Federal employees and dollars allocated could go either way. Less oversight might make things move more easily, but fewer people processing work could ultimately result in slowdowns.  

Immigration

Millions of immigrants have crossed the US southern border by land, sea, and air over our history, especially over the past four years. Trump ran on deporting many of these individuals and protecting our southern border. Many doubted his commitment to this issue, but 7,300 deportations occurred within his first week, and the flow of incoming individuals dramatically reduced. The stated target is to send 15 to 20 million people back to their homeland (despite official estimates of only 11 million in the country). While the priority is criminal illegal aliens, farmers report anecdotally that harvesting of crops is already being delayed as workers fear getting picked up by Immigrations and Customs Enforcement (ICE). Federal funds sent to cities like New York and Chicago are also being cut. This will force them to either support non-citizens with their own taxpayer funds or close facilities that support those families. This might encourage self-deportation.

Economically speaking, immigration’s impacts show mixed results. Declining birth rates in the US and developing countries pose a risk to economic growth if companies cannot staff their organizations. Benefits programs for older generations and the poor receive their funding from current workers’ wages. If those migrants lack skills, the chance of them utilizing more taxpayer benefits than they cover could result in a net loss. Programs they take advantage of might include food stamps, public schooling, Medicaid, and housing assistance. Wages tend to go down with a higher supply of workers, especially if they do similar jobs. This would tend to make poor Americans poorer than they otherwise would be. Creating a smarter immigration process to bring in workers based on need, as Australia does, should be the goal. Systems do not respond well to massive change over short periods, so I expect a negative impact in the near term.

Department of Government Efficiency (DOGE)

Donald Trump tasked Elon Musk with an audit of US government spending, and the results thus far sound surprising. The United States Agency for International Development (USAID) sent billions around the world, ostensibly to support their mission of economic development, humanitarian assistance, health, education, and climate change. Surprising expenditures include $45 million spent in Burma for diversity scholarships, $330 million for development projects in Afghanistan, which may inadvertently support the Taliban, and $520 million for environmental investments in Africa. DOGE also reports that approximately twenty million people over the age of 100 (6% of the US population) receive social security payments. This includes almost five million over the age of 130. If the amount of fraud and waste in the US government is truly this high, a number of things may be true.

  1. The US government could reduce its deficit dramatically and potentially even balance its budget.
  2. We could drastically reduce the number of employees working federal jobs.
  3. Tax rates could be lower and still support our spending needs.
  4. Our leadership is inept, and our oversight is severely lacking at best and non-existent at worst.

Considering we are less than one month into the term, the effects of the blitzkrieg and the response remain uncertain. Various courts have placed temporary restrictions and rulings against some of these actions, but the American justice system moves slowly. The Supreme Court will answer many of the questions regarding the division of power and what the executive branch can do unilaterally. Substantial growth in the power of the Presidency continued throughout many administrations, abetted by a legislature unwilling to make decisions for fear of losing their next election. Term limits and being held responsible for the country’s direction, no matter what Congress does, frees Trump to do what he thinks is best. Right now, he is doing everything all at once.

Photo by Possessed Photography on Unsplash