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US politics and policy

The Politics of 2025: the view from Washington, DC

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January 2025 sees the seating of a new US Congress and Donald Trump’s return to the White House. President Trump and his advisers have outlined – in varying degrees of detail and with varying degrees of conviction - often sweeping ideas for remaking much of the US economy and government, from immigration to trade, from taxes to government spending.

However, Trump will face meaningful fiscal and legislative headwinds that did not exist in his first term. Following his own deficit-widening tax package in 2017 as well as the covid-19 response bills engineered under both Trump and Biden, Trump is returning to the presidency with a US federal budget deficit of 6.1% of GDP (according to the St. Louis Fed). This is nearly double the level when he was first elected in 2016 and the highest in modern US history outside of World War II, the 2008 financial crisis and covid-19. The CBO forecasts US federal debt is projected to reach a record 116% of GDP by 2034. US policymakers are taking note.  

Furthermore, Republicans will initially hold just a two-seat margin in the US House to clear the 218 votes needed to pass legislation. This makes this chamber a key swing factor (the Senate majority of 53-47 is another factor) for any measures that require legislation. Early next year the House GOP margin will decline further, albeit temporarily, as two House members join the Trump Administration. A deficit-busting tax-cut package might fail to win support from House fiscal hawks. 

Similarly, while criticized by Trump, Biden’s signature Inflation Reduction Act (IRA) is delivering billions of dollars to GOP-controlled districts. This makes a partial repeal vulnerable to objections from even a small handful of Republican Members who don’t want their constituents to lose these benefits.

Surrounded by advisors steeped in Wall Street and business experience, Trump may turn to the private sector should Congress and/or the bond market limit his expansionist plans. Companies and investors will have a strong voice in the Trump Administration they should not be afraid to use. The private sector hopes Trump is on their side – but Trump also needs the private sector as well to keep the US economy humming without inflation returning. 

For instance, some have proposed selling the government's large stakes in the US government sponsored enterprises (GSEs), which guarantee the bulk of US residential mortgages, to pay for tax cuts. A "CHIPS Act 2.0" could expand beyond the domestic support for the US semiconductor industry, turning to public-private funding for critical minerals, electric grid expansion and AI development to keep up in the tech race with China. On the downside, targeted advocacy is almost certainly going to be required to ensure trade and other measures do not harm domestic interests. 

The pace of news from DC is certain to ramp up in 2025. Trump and his advisors will want to dominate the news cycle and keep their opponents off-balance. That will mean dealing with a flood of ideas and speculation – often channeled by a media that tends to interpret the new President very literally. Yet lasting change does not occur overnight and the Trump Administration has not repealed political and fiscal reality. Investors and corporates need to keep the big picture and the medium-long term in mind.  

The Politics of 2025 programme of events and content reviews and debates the political and policy landscape in 2025, featuring insights from our expert team and leading external commentators. From escalating geopolitical tension to a new political landscape amid turning-point elections, and technology-driven change in a rapidly evolving world, The Politics of 2025 builds into a picture of the world of business, politics and policy in 2025.
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    The views expressed in this research can be attributed to the named author(s) only.