GlobalData: Impact of Trump 2.0 on U.S. retailers
From a renewed tax cut to increased tariffs, there are positives and negatives for retail in the reelection of Donald Trump, according to Neil Saunders, managing director of retail at GlobalData, a leading data and analytics company.
Saunders offers his view on some of the ramifications of Trump 2.0 for U.S. retailers below.
"Not for the first time in his life, Donald Trump has stunned the nation and the world. His victory, although not entirely unexpected, bucks both the popular narrative and numerous predictions. It also means that Trump policies, many of which people thought they had seen the back of, will come back into play."
"For retail, the Trump victory brings a mixed bag of positives and negatives, with a large dose of uncertainty. The main positive for retail is that President Trump will almost certainly renew the tax cut package he introduced during his first term in 2017, which was due to expire at the end of 2025. This will be broadly helpful to consumer incomes, although retailers should not expect to see a surge in spending as it is about rolling over an existing policy that is already baked into consumer behavior."
"There is a possibility that general taxes might be cut further, which will be facilitated by a friendly Congress. Although the soaring budget deficit will inevitably act as a constraint here. As such, it’s likely that new cuts will be targeted and focused on exempting tips and overtime pay from income tax and allowing households to take more deductions. In the round, this will put more money into consumers’ pockets and will bring a small boost to retail spending."
"Another benefit for retailers will come from Trump’s view that corporation tax should be cut further, possibly to 15%. This will be beneficial to retail earnings and will also facilitate retail investment."
Downside
"The huge downside to retail comes from Trump’s proposals on tariffs. While immediate action is unlikely as any new tariffs would take time to implement, the threat of increasing tariffs on China to 60% and on other countries to 10% to 20% would create an enormous headache and add significant additional cost for retail. "
"Despite Trump’s assertions to the contrary, tariffs are paid by the companies or entities importing goods and not by the countries themselves. This means the cost of buying products from overseas, whether directly or as an input for manufacturing, would rise sharply."
"Given the trade between Chinese manufacturers and U.S. retailers, a strict tariff policy would mean retailers initially either taking a massive hit on profits or being forced to put up prices, which would fuel inflation and dampen retail volume growth. Over time, supply chains would adjust to a new tariff regime, but this would not happen overnight and would be incredibly disruptive. The small hope is that the tough talk on tariffs is more of a negotiating ploy and that what is finally implemented will be relatively modest in scope."
"A side effect of tariffs and higher prices would be interest rates staying higher for longer, which would be unhelpful for the housing market which, in turn, will act as a drag on home-related categories. While Trump promised lower interest rates, and wants more control over the setting of rates, it is not in his immediate gift to enact this kind of change."
Regulation
"On regulation, the hostile approach of the FTC to mergers and acquisitions will almost certainly be reset and replaced with a worldview that is more favorable to corporate dealmaking. This does not necessarily mean that big deals like Kroger-Albertsons will be waved through. Bu it does mean others like Tapestry-Capri will receive a far warmer reception than they have under the Biden administration."
"However, it needs to be noted that Trump is not a free-marketeer and that some political overtones, including a slightly anti-big tech bias, may remain in regulatory politics."
"Despite the shock change, it should be noted that changes happen at the margins and occurs over time. A second Trump administration will not collapse retail, nor will it propel it to dizzy heights. It will simply change the gradient of the growth trajectory, and the tonality of the policies retailers need to deal with."
