BNY Investments US equity income portfolio manager John Bailer considers two tenets of the Trump presidency so far – import tariffs and deregulation – and what they could mean for certain sectors of the US economy.
Key points
Donald Trump’s trade tariffs are widely expected to have an inflationary effect on the domestic economy. But BNY Investments' John Bailer is not convinced. Rather than being outright inflationary, Bailer suggests tariffs are more of a bargaining tool for Trump to achieve certain fiscal objectives.
Since his inauguration, Trump has imposed a raft of tariffs. These include 25% on imports from Canada and Mexico1, and 20% on those from China2. He has also imposed 25% tariffs on steel and aluminium imports from the European Union and Canada3 – and committed to so-called reciprocal tariffs on a range of other countries4.
The fear is that tariffs could ramp up the cost of goods for US importers who could pass these on to retailers and, in turn, end consumers.
But while Bailer believes there are certainly inflationary forces at play in the global economy, such as secular drivers like deglobalisation and decarbonisation, he has a sanguine take on tariffs as a contributing factor. “I take the other side,” he says. “I don't think tariffs will be as inflationary as the market fears… because Trump is all about the art of the deal.”
External revenue
As part of this ‘deal making’, Bailer notes Trump’s rhetoric on creating an “external revenue service”5 .The intention of this is to collect tariffs, duties and revenue from foreign sources to relieve the tax burden on internal sources, i.e. domestic companies.
“Trump believes there should be an external revenue service,” says Bailer. “When it comes to renegotiating tax policy in 2025, we could see tariffs as part of that package – the idea being to generate more revenue from external partners, maybe through broader tariffs, at the same time as cutting taxes internally.”
He adds: “It's indeterminate whether that's inflationary or not, so I'm not a big believer that tariffs overall will be inflationary. But I do believe interest rates around current levels probably makes sense for the economy and the yield curve will be a little steeper.”
Banks
As well as imposing tariffs, Trump is seeking to roll back regulation across a wide range of industries. This has been evidenced by a flurry of executive orders since his inauguration, tackling areas including government spending, defence, immigration and climate6.
Banking is another sector that Bailer believes could come under Trump’s deregulatory lens. Prior to Trump’s inauguration, the Federal Reserve announced a cut to a proposed increase to capital requirements under the Basel III regulation7 . But Bailer suggests there is a possibility the Trump administration could water this down further8.
“During the global financial crisis we needed more regulation, the banks needed more capital,” adds Bailer. “But they spent over a decade building capital levels and the banks in the US, especially the large banks, have an incredible amount of capital right now. They're in great shape.”
If capital requirements are indeed left untouched, Bailer believes financial stocks could help stimulate the economy through increased lending activity. They could also return more capital to shareholders in the form of dividends, he posits. As such, the BNY Mellon US Equity Income portfolio is overweight financials.
Energy
Energy is another sector potentially in line for a cut back in regulation. Bailer says Trump’s “drill, baby, drill” pledge9 could increase the domestic supply of oil and natural gas but that could be offset by a tougher diplomatic stance on Iran and Venezuela, restricting supply10.
“When you net those two forces, the oil price and natural gas price look to be pretty good where they are today,” says Bailer.
The BNY Invesments US equity income team is positive on natural gas players because of the huge electricity demand needed in the US to support the manufacturing renaissance that Trump is seeking to enable through lower taxes on domestic companies. “We see that continuing,” Bailer adds.
Bailer would also caution investors about getting too excited about a coming surge in US energy supply. “Trump telling the energy companies to ramp up production is like ‘pushing on a string’,” he adds. “Many of these companies have become a lot more disciplined over the last decade and focused more on returning capital to shareholders through dividends and buybacks than increasing production.”
“We believe this is great for dividend investors,” he concludes.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
Important Information
For sole and exclusive use by Institutional Investors, Accredited Investors and Professional Investors only. Not for further distribution. This is a financial promotion and is not investment advice. Any views and opinions are those of the investment manager, unless otherwise noted. The value of investment can fall. Investors may not get back the amount invested. BNY, BNY Mellon and Bank of New York Mellon are the corporate brands of The Bank of New York Mellon Corporation and may also be used to reference the corporation as a whole and/or its various subsidiaries generally. BNY Investments encompass BNY Mellon’s affiliated investment management firms and global distribution companies. Any BNY entities mentioned are ultimately owned by The Bank of New York Mellon Corporation. In Hong Kong, the issuer of this document is BNY Mellon Investment Management Hong Kong Limited, which is registered with the Securities and Futures Commission (Central Entity Number: AQI762). In Singapore, this document is issued by BNY Mellon Investment Management Singapore Pte. Limited, Co. Reg. 201230427E. Regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the Monetary Authority of Singapore.
MC492-02-04-2025 (6M)
CONTACT US | +65 6654 1000 | Institutional.apac@bny.com
