President-elect Trump's recent US election victory is anticipated to cause a range of economic, geopolitical and social impacts. In the first instance, a decisive result has at least been a positive outcome in that it gives little cause for controversy, ensures a peaceful transfer of power, and provides a degree of stability for markets. No one can predict the impacts of the election result on the US and the rest of the world at this point, however, in this note we briefly discuss which of these are most likely to influence transatlantic investment.
Trump's administration will aim to strengthen the US economy by reducing regulation, lowering taxes and strengthening domestic industries. He has also made bold campaign promises to implement tariffs on key US trading partners, though there is some scepticism of whether tariffs will in fact be imposed or whether the threat of tariffs can be better characterised a tactic to strengthen the US negotiating position in the rebalancing of trade agreements.
If Trump does impose tariffs as promised, his administration will be faced with the challenge of having to mitigate their subsequent inflationary effects. If the administration is successful in mitigating this downside impact, we will continue to see a near term expansion in the US economy, particularly if the intended tax cuts fuel growth in the US economy.
However, if tariffs are imposed too widely and the Trump administration fails counteracting a potential increase in consumer prices creating inflationary pressure, this may negatively impact the ability of the Fed to continue lowering interest rates, especially in a growing economy, and it may even lead the Fed to sustain or increase interest rates and with that borrowing costs, dampening US spending and appetite for dealmaking.
To account for either of these scenarios, businesses may choose to adopt a "wait-and-see" approach and bide their time until markets settle down, before deciding to increase any transatlantic investment activities.
Trump's promised cuts specifically to corporate taxes and capital gains, his more liberal approach to antitrust and regulatory issues, as well as the stable environment afforded by his definitive victory, all suggest that the ongoing uptick in M&A transactions will continue. However, this may not apply to transactions involving "Big Tech", which are still likely to experience heightened levels of scrutiny. This is due in part to Vice President-elect JD Vance's negative views on the disproportionate levels of power concentrated in these companies, as well as the fact that several of the antitrust cases they currently face in fact began during Trump's first term as president.
Other areas where Trump's campaign promises could impact transatlantic investment include a much more permissive approach to AI regulation, which should continue to invigorate the innovation economy through start-up and scaleup investment and productivity gains across the board. In addition, a potential rollback of both the Chips and Science Act and the Inflation Reduction Act (IRA) could temper domestic US investment in key industries such semiconductors and clean energy. However, Trump will face pressure to refrain from fully dismantling this expenditure, which in recent years has given the US a considerable edge over Europe in investment in these areas. Furthermore, any reduction in spending across these programs is likely to be reallocated to other domestic infrastructure projects and with the majority of the dollars allocated so far being spent in Republican congressional districts, a full repeal at least may not be politically straightforward.
Conversely, an overall shift in US focus away from investment in strategic sectors such as semiconductors and clean energy could return investor attention and deep-tech expenditure from the US to Europe, a market which, in the pre-IRA era, was seen as a global leader in the space.
We expect that an increase in M&A, Private Equity, and Venture Capital activities will be driven in part by Trump's deregulation in sectors strategic to both the US and global economies. Among these are energy, for example, where deregulation is expected to increase demand for production facilities in the US as M&A targets. European companies may also be incentivised to produce directly in the US in order to benefit from lower energy prices and to avoid paying US-imposed tariffs on European products.
Increasingly protectionist policies and the growing importance of protecting national interests, a trend already experiencing strong global growth but anticipated to be exacerbated by the Trump administration, will drive an increase in the complexity of cross-border transactions. Obtaining sound regulatory and commercial advice, particularly in relation to foreign trade law, will be critical to international transactions. For example, in sectors such as fintech and crypto, which are likely to be strengthened under the incoming US administration, we expect particularly high complexity in cross-border deal making as US and European regulatory models diverge.
Again, the proportion of Trump's campaign platform which will actually be implemented remains to be seen, so the direct impacts of the election result on transatlantic investment are not currently certain. However, the composition of Trump's new administration is vastly different from and more radical than that of his previous term, and the Republicans' majority control of US government means there will be far fewer barriers to implementation of the administration's campaign promises.
In conclusion, the evolving economic and regulatory landscape driven by the incoming US administration's policies is set to create both opportunities and challenges for global investment. As measures imposed by Trump and his team invoke economic impacts globally, companies will need to navigate increasingly complex circumstances in balancing national interests, multilateral obligations, and sector-specific nuances. Companies that can adapt to these changes, particularly in high-growth areas such as energy, deep tech and crypto will be well-positioned to thrive in an interconnected, yet more protectionist, global market.
Irrespective of the range of potential impacts on the global economy, we will continue to uphold the firm's 30+-year history of advising growing US clients on their investments and expansion in the European market.
