October 9, 2023

By Thomas Dee, Capstone Head of Research and Strategy

It’s time to consider the possibility that Donald Trump will be reelected to a second term in the White House.  In many respects, such a scenario sounds implausible: only one other president (Grover Cleveland) left the White House and successfully returned for a second term four years later – not to mention the four indictments, 91 felony charges, and countless other investigations and controversies circling the former president.

Yet polling shows that Trump is not only favored to win the Republican primary, but he is neck-and-neck with President Biden in the general election.  According to FiveThirtyEight, Trump is averaging 59% in Republican primary polling, multiples of next-best Florida Governor Ron DeSantis, who sits at just 13% (last updated: Nov 30).  In a general election contest between Biden and Trump, polls show a toss-up – or even a slight Trump edge.

On Friday, Capstone wrote a series of notes analyzing how U.S. regulatory policy would evolve under a second Trump term across four sectors: energy & industrials, financial services, healthcare, and technology. 

We expect several policy themes to resonate across sectors.  A notable theme is deregulation. Regulatory agencies, from the Consumer Financial Protection Bureau (CFPB) to the Environmental Protection Agency (EPA), will pursue a pro-business, deregulatory agenda consistent with Trump’s first term.  Second is the absolute importance of Trump’s advisors and appointees.  Leadership in Trump’s first term included a mix of pro-business, establishment Republicans, and right-wing populists, which created an environment of jostling and hostility that drove – and sometimes hampered – policy developments.  “Personnel is policy,” and in no regime is that truer than in a Trump White House. 

We expect several policy themes to resonate across sectors.  A notable theme is deregulation… Second is the absolute importance of Trump’s advisors and appointees. 

But we foresee several less-obvious policy implications of a Trump second act that we believe our corporate and investor clients should be paying attention to.

In Energy & Industrials, we believe the Inflation Reduction Act (IRA) is here to stay, despite no shortage of Republican ire under a Trump White House. Any action by a Republican Congress on the IRA would likely target narrow changes to tax credits and programs, instead of wholesale repeal.  Where Republicans are likely to have more success is the weakening, and maybe scrapping altogether, of the EPA’s Power Plan Rule—a positive for fossil generation owners, delaying the energy transition and reducing incentives for new renewables and existing nuclear power. We also expect states to step in and try to pick up the slack on environmental policy.  And we expect a return of Trump, the self-proclaimed “tariff man,” a positive for domestic manufacturers but turbulent for many others.

Financial Services policy will be dominated by the drumbeat of deregulation.  We believe the CFPB would be gutted, perhaps even more than in Trump’s first term, positive for credit card issuers and other companies specifically targeted for enforcement or rulemaking in the Biden Administration.  In banking, the so-called Basel III endgame, a July 2023 proposed rule that tightens capital requirements for large banks, may face delays or revisions amidst strong industry and Republican opposition.  And after a quiet four years, discussion around “GSE reform” – releasing Fannie Mae and Freddie Mac, the two mortgage giants, from conservatorship – would likely return.

Healthcare, we believe behavioral health would see a resurgence in attention as it sits at the rare nexus of bipartisan support and border security.  But like in Trump’s first term, a second Trump Administration would likely expand nontraditional health insurance at the expense of Affordable Care Act (ACA) insurers.  And we believe hospitals would benefit from large uncompensated care waivers favored by the Trump Administration.

In the Technology sector, we believe regulators will continue to turn up the heat on big tech, as antitrust enforcement outlook is unlikely to improve early in a second Trump administration due to the FTC’s term structure as well as bipartisan scrutiny of big tech.  We expect tech policy to continue to get tougher on China – a rare area of continuity between Trump’s first term and Biden’s.  And artificial intelligence (AI) will face a challenging state-by-state environment, following the path of privacy regulation, with states taking the lead in lieu of federal action.

Control of Congress will play an important role in defining the policy objectives of a second Trump term.  Democrats face an uphill battle to maintain control of the Senate in 2024, with several vulnerable states.  If Trump wins the White House, he may very well have unified control of the House and Senate, allowing the Trump administration to shape a more ambitious tax, regulatory, and legislative agenda.

If Trump wins the White House, he may very well have unified control of the House and Senate, allowing the Trump administration to shape a more ambitious tax, regulatory, and legislative agenda.

At Capstone, we will continue to closely evaluate how “Trump 2.0” and other political scenarios will drive US and international policy – and its implications across all sectors.   

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