There has been plenty of commentary and speculation around the various policy initiatives that President Donald Trump is likely to enact during his second administration. What has been missing in the debate is how much the timing and sequencing of measures matters for the impact on economic and market performance.
In short, Trump’s agenda includes both pro-growth as well as growth-constraining elements, with the latter driven by economic nationalist concerns about US competitiveness and immigration. These can be simplified into two distinct growth-supporting and two growth-constraining drivers: de-regulation and fiscal expansion (especially tax cuts) versus immigration restrictions and trade tariffs. What matters is calculating the timing, sequence and magnitude of each measure to assess the ultimate growth impact (Figure 1).
Figure 1. Timing of major policy measures in 2025-26
Growth impact, %
Source: State Street Global Advisors
De-regulation will begin instantly as it can be enacted by executive orders and change of political appointments in charge of interpreting legislation. In fact, some of the de-regulatory impulses have already made an impact as markets have priced in future actions. Deregulatory steps are not equally impactful across the economy with highly regulated industries, such as financial services and energy, benefitting disproportionately.
While those steps take effect early and we have already seen signs of higher capital expenditure in response, the historical track record of de-regulatory growth impulses is mixed, and certainly one that requires time to transmit across the economy. As such, one should view it as early, drawn out and of relatively limited impact.
In contrast, the major growth lever is fiscal policy (as evidenced in the US over the past 6-7 years). Here the dynamic is likely to be the opposite, with a full fiscal package not expected to be passed until late 2025. The interim measures will be stopgap budgets with limited fiscal thrust. However, the year-end budget deal is very likely to include some lower tax burden on corporates and households. While there is discussion about spending offsets, we are sceptical that they will be equal and fiscal policy should deliver a positive growth impulse – albeit only taking effect in 2026.
On the other side of the ledger, Trump is determined to rein in migration flows, and possibly even raise the number of deportations of illegal immigrants (and notably workers). Like de-regulation, this can take effect very quickly through executive orders. Legal migration is fully controllable by the executive in terms of how and when to issue immigration visas. But even illegal immigration can be heavily affected by border agencies as well as overall foreign policy.
Post-pandemic, the native working age population has shrunk by about 270,000 annually, while the immigrant working age population has grown each year by roughly 900,000. Consequently, the reduction in migrant share of US labour force could quickly affect supply-side potential, once the small amount of slack in today’s market has been absorbed.
Finally, tariffs. Here there is the greatest uncertainty over timing and scope. That said, we can expect two concurrent paths of tariff usage, depending on the respective trading partner. One path will most likely see a gradual increase in bilateral tariffs over time, presumably starting as early as Q2 2025. China is the presumptive target here, but other countries could be exposed that early too.
The other path is the use of tariffs as a negotiation tool to achieve policy changes by trading partners, be that in the domain of trade or elsewhere (for example, migration for North American Free Trade Agreement countries, depth of relations with China, energy or security policy). While the imposition of tariffs can modestly curtail growth by raising input and consumer prices, the perennial threat of tariffs is perhaps more damaging given the uncertainty it creates for businesses, which deters investment.
In sum, the mix of measures tilts towards boosting animal spirits and encourages business investment in the US. However, in order for this to be successful, the timing of the growth-negative measures matters, and these appear to be more front-loaded.
