Policy Scenarios for a Second Trump Term and the Impact on Asset Markets

The Character of the Administration

Reading individual policies calls for first defining the character of the administration. A consistent worldview comes before this administration's policies. The direction a second Trump term has declared falls into four strands.

• Anti-federal government and anti-bureaucracy: an orientation toward shrinking federal authority and the regulatory apparatus
• America First: treating domestic industry and employment as the first criterion in policy decisions
• Isolationism grounded in realism: a foreign policy line that puts calculations of interest ahead of ideological intervention
• A return to conservatism: reversion to earlier positions across social and cultural policy

The four are not independent of one another. The anti-federal stance leads to deregulation, America First to tariffs and a reshaping of industrial subsidies, and isolationism to reduced support for allies. The sector policies examined below should all be read as derivatives of this character.

Fiscal Policy

Tax cuts are the axis of fiscal policy. The design is to lower corporate and income tax together, increasing corporate capacity to invest and household disposable income, and to stimulate the economy through that. Tax cuts are the stimulus measure felt most quickly, and consumption and investment indicators in the period right after implementation generally reflect them positively.

The question is funding. If spending cannot be reduced by as much as revenue falls, the fiscal deficit widens. The deficit is filled by issuing Treasuries, and greater Treasury supply translates into upward pressure on interest rates. Because US Treasuries are the benchmark asset of global financial markets, that pressure does not stay inside the United States.

Monetary Policy

The administration is expected to push for lower interest rates. An economy stimulated by tax cuts has to be supported by low rates for the policy effect to come through in full. Lowering rates, however, carries the precondition that inflation stabilizes first.

This is where policies collide. A wider fiscal deficit pushes up Treasury yields, and tariffs push up import prices. Both work in the opposite direction from price stability, so pressure from the administration for cuts is unlikely to translate directly into lower long-term rates. There may be periods in which the policy rate and long-term rates point in different directions.

Trade Policy

Trade is the area where America First shows most directly. A baseline tariff of 10% on all imports and a tariff of 60% on goods imported from China have been put forward, as proposed by the Trump campaign. The tariffs are designed to secure revenue and, at the same time, to protect domestic manufacturing.

• A 10% baseline tariff on all imports: a uniform levy applied across trading partners
• A 60% tariff on Chinese goods: a differentiated levy whose stated aim is to constrain China
• Short-term effect: revenue secured through tariff receipts
• Long-term effect: private consumption contracting through higher import prices

Importers pay the tariff, but the cost is passed into final prices. If the disposable income added by tax cuts is eroded by tariff-driven price increases, fiscal policy and trade policy end up offsetting each other's effects. On this report's reading, the gap left as the United States scales back trade relationships may leave room for China and Russia to widen their influence.

Industrial Policy

The direction of industrial policy comes down to dismantling the industrial support system built by the previous administration and securing low-cost energy. Repeal of the Inflation Reduction Act (IRA) and scrapping of the CHIPS Act are under discussion, and low-cost energy development centered on shale is being pursued at the same time.

The IRA and the CHIPS Act are mechanisms that have used subsidies to draw in the green transition and a reshaping of the semiconductor supply chain. If those mechanisms disappear, the business plans of companies that decided on investment on the premise of the subsidies become subject to review. Falling energy costs, conversely, work in favor of cost structures across manufacturing.

Foreign and Security Policy

The isolationist line is pronounced in foreign and security policy. On the war in Ukraine, an attempt at a ceasefire is expected, and support for allies is reduced. Interest rather than ideology becomes the criterion for intervention. Demands for burden sharing on defense are also likely to intensify.

As the security public good the United States has supplied shrinks, each country has to secure its own defense. That leads to larger defense budgets and, at the same time, reinforces an order in which individual national interest takes precedence over frameworks for international cooperation.

Social Policy

Social policy turns on cuts to welfare. It follows from a fiscal logic that seeks to make up for revenue lost to tax cuts by reducing spending, working together with the administration's disposition to shrink the federal role.

Impact on Financial Markets

From the standpoint of financial markets, the key variables are rate cuts and deregulation. Both improve liquidity conditions and raise appetite for risk assets, working in the direction of higher asset prices. As noted above, however, long-term rates may move the other way, so the effect is not uniform across asset classes.

The themes that connect directly to the policy direction and stand to benefit are as follows.

• Infrastructure: a direct beneficiary of expanded domestic investment
• Financials: an improved operating environment from deregulation
• Defense and security: linked to countries strengthening their own security
• Nuclear power: one axis of the policy to secure low-cost energy

Impact by Industry

By industry, the beneficiaries and the losers of policy separate clearly. Sectors directly exposed to tariffs and to reduced subsidies stand on the negative side, and sectors connected to security and energy policy on the positive side.

• Autos: negative, with the tariff burden and a scaled-back IRA acting at the same time
• EV batteries: negative, directly affected by smaller green subsidies
• Technology stocks: negative, on the scrapping of the CHIPS Act and shrinking trade with China
• Consumer goods: negative, on tariff-driven import prices and weaker consumption
• Defense: positive, in step with rising defense spending across countries
• Energy: positive, on expanded shale-led development

Korean Institutional Investor Trends

The more volatile the external environment becomes, the further institutional asset allocation extends beyond traditional assets. The National Pension Service (NPS) manages USD 783 billion, the third-largest pension fund in the world, and has steadily expanded its allocation to alternative assets. The Korea Investment Corporation (KIC) has likewise set out a plan to allocate 25% of assets under management to alternatives by 2025.

Appetite still differs by asset class. Real estate remains in wait-and-see mode, while the number of institutions allocating to private equity, private credit, real estate, and infrastructure is rising. The movement of capital into the alternatives space is itself continuing.

Conclusion

The policy mix of a second Trump term contains short-term stimulus and a long-term burden together. Tax cuts and deregulation favor asset prices, while the fiscal deficit and tariffs erode that effect through interest rates and inflation. In an environment where high rates and high inflation become a constant, differentiation by policy exposure is more likely to stand out than a broad rise across asset classes. What Korean investors need is not a directional forecast for the market as a whole, but the work of tracing how policy channels reach the cash flows of individual assets.