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Lower taxes, tariffs to protect domestic industry, stricter immigration control – one might think that Donald Trump's plans would be favorable for the capital markets. However, each of his measures would bring about undesirable – and indeed massive – side effects. "A Trump victory would therefore not be positively received by the markets," predicts Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

U.S. presidential candidate Donald Trump has announced various measures in the event of his victory, three of which are particularly significant for the economy. First: tax cuts. The income tax reduction introduced by Trump in 2018, which is set to expire at the end of 2025, is intended to become permanent. Additionally, he has proposed reducing the corporate tax rate from 21% to 15%. "However, this would have to be financed through higher debt," Gerlinger explains. This comes despite the fact that the U.S. budget deficit is expected to reach 6.7% of GDP this year and remain at around six percent over the next ten years. "The capital markets would demand a risk premium in the form of higher yields for additional debt," Gerlinger adds.

Trump's second measure: tariffs. To protect U.S. industry, the import tariff on Chinese goods is to be increased to 60%, accompanied by a general external tariff of ten percent. "Whether this will help U.S. industry remains to be seen," says Gerlinger. What is certain, however, is that inflation will rise, as tariffs are added to prices. "Even the tariff increases from Trump's first presidency were ultimately paid by U.S. consumers, not by foreign exporters," Gerlinger explains. Therefore, tariffs harm consumption and tend to lead to higher interest rates due to increased inflation.

The third measure: stricter border controls and what Trump calls the "largest deportation program in American history." The result would be a drastic reduction in immigration and the number of illegal migrants in the U.S. "This measure is also likely to drive inflation up," says Gerlinger. After all, according to estimates, more than eight percent of the Texas workforce consists of illegal immigrants. The expected labor shortage due to deportation would drive up wages and, consequently, prices, which would also push interest rates higher.

Overall, Gerlinger expects a rapid and strong increase in yields on ten-year U.S. bonds in the event of a Trump victory. "The dollar could appreciate significantly as a result," says Gerlinger, "even though Trump actually wants a weaker dollar." If the U.S. president intervenes in the foreign exchange market to this end, a dangerous spiral could ensue. "The long-term consequence would be a loss of confidence in the U.S. currency, the dollar would plummet – and that would be poison for the capital markets."