Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Chris Krueger:
Good morning. Welcome back to TD Cowen Street Cred. I am Chris Krueger with TD Cowen's Washington Research Group, and we'll attempt to translate K Street to Wall Street faster than a speeding Acela and even faster if you juice up the playback. This is our inaugural 2025 pod, hoping to make these monthly. So we're now just over one month into the second Trump administration. We're going to run through our eight part Trump priority list in a few moments, but wanted to make two opening comments. The first, our six person Washington Research Group put out an ahead of the curve note in January on Trump's first 100 days, what to expect with the incoming administration. We entitled that report, all gas, no break. Candidly, I think we undershot it a little bit. This has been an unprecedented month in public policy and governance that hopefully we can help provide a context for on what to expect on a go forward.
And then the second point, just up front in our view, we believe President Trump is perfectly comfortable being a policy paradox and pushing both competing policies and people. We've called this the chaos premium, and it really only increases President Trump's leverage in negotiations and keeps him at the molten center of the global policy zeitgeist. Okay, we count no fewer than eight policy priorities for the Trump administration. All of these eight priorities start with a D. It helps us keep track of them all, so call it 8D chess. But let's start in no particular order. Number one, de-globalization. Don't overthink it. What does President Trump always talk about? America first. In our view, I think people try to maybe overly complicate things. Look for explanations in this. Don't overcomplicate it. Don't overthink it. America first. If you don't want to pay the proposed tariffs, bring your manufacturing to the US, right?
That is just sort of the stated policy of de-globalization factory america. Number two, a cousin to that drill, both energy dominance and AI dominance. This is a key priority. You have the Interior Secretary Doug Burgum, sort of leading on this effort. Any type of potential inflation with tariffs and others think from the administration's standpoint, some of that can be mitigated with a strong dollar with FX washing out, but then also with keeping gas prices low, so it's not just energy dominance, but also winning AI. Look at one of the very first announcements from President Trump in the White House. You had the big Stargate demonstration. So this is one area too that kind of flows into point three, deregulation. Until the DeepSeek China AI news from a few weeks ago, we were pretty positive on deregulation across the board from a market standpoint, with one exception of big tech.
You've had a number of folks more from the JD Vance policy side in those positions, and there was a concern with tech that whether it's antitrust, whether it's consumer protection, that maybe not as market friendly as investors were hoping for. In our view, that really changed with the DeepSeek news. It was in our estimation, a Sputnik moment in Washington policy. Because now those big tech platforms should the White House or should regulators start pushing back on antitrust in the AI space, those tech platforms can make the argument that you, by doing this, you are harming us in the race for AI, and if we don't win AI, China will. So that's sort of where de-globalization, drill, and deregulation all seem to kind of line up together. Okay. Number four, deportation. This is certainly one of the top three issues that President Trump ran on.
If you think about the three Is from the 2024 election, immigration, inflation, identity politics. Pretty much at every event then candidate Trump made the pledge of the largest deportation effort in US history, and that is very much moving forward. This is though starting to slow a bit, given lack of resources, this is a huge push in both the House and Senate reconciliation bills, something in the neighborhood of $150 billion to aid in these deportation efforts, but that's number four. Okay. Number five, probably the most expansive, deals. This includes the trade agenda, but also diplomacy and everything from a global standpoint. Maybe just drilling down on tariffs a bit because we do have a number of deadlines coming up for big deadlines that will flag in a second, but I think it's just important to step back for one second. The primary trade scorecard for President Trump in our view is the bilateral goods deficit.
So think about 2018, 2019, the China phase one agreement. That's sort of the blueprint on a go forward, just buying more US goods, specifically buying more US energy products, which would only help serve that second priority we flagged. The other issue within this to think about is tariffs. Tariffs are fundamentally a trade tool, but President Trump is wielding them almost as a universal MacGyver Swiss Army knife. A lot of the initial tariff threats were not on trade matters. They were on migration issues and illicit drug flows. The 10% tariff on China is not for trade matters. It's due to fentanyl and using that IEPA statute for the first time ever. So four deadlines around the corner. March 5th is the potential 25% tariff on Mexico and Canada, with a 10% tariff on Canada Energy. March 12, we have the 25% tariff threat on steel and aluminum. April 1st, very important, this is the America first trade policy memo.
This is likely to include more tariff recommendations along with FX, export controls, retaliatory taxes. When you go back and read from January 20th, that executive order from President Trump, this memo is largely going to be the foundation and sort of the steel undergirding for the trade agenda on a go forward. And then April 20th, the potential 25% tariff on pharma, autos, semis. And as of February 20th also, lumber and forest products. So more tariffs really a question of when, not if in our view. So stay tuned on this topic. Okay, number six, debt. This is largely a story of the reconciliation process, which continues to be incredibly fluid and evolve almost on a daily, if not hourly timeframe. Reconciliation in our mind is probably going to be a two-step process. Two things are really driving this. Number one, the need for more deportation dollars for President Trump's agenda.
But then number two, the expiration of approximately four and a half to $5 trillion in tax policy at the end of this year with the Tax Cuts and Jobs Act. Those two issues are on very different timetables. And reconciliation is entirely Republican-only process. The Senate wants to put some points up on the scoreboard sooner rather than later. April 30th is the first 100 days deadline. The Senate has approximately $300 billion in dollars going to both a defense plus up as well as the deportation efforts. The House wants to include that bill, but then also 4.5 trillion in tax policy. Ultimately, we'll see what happens with this. Net-net the overwhelming financing for those tax extensions is going to be debt. You look at the programs that President Trump has taken off the table, specifically Social Security and Medicare, and the math is just the math. But number seven, defense, something in excess of $100 billion in a plus up.
These are very likely sectors like shipbuilding, space, munitions, essentially restocking the from Ukraine and perhaps the Iron Dome missile shield that President Trump has discussed. And then finally, number eight, DOGE. This is probably the biggest surprise that we've seen in the first month. There's really no comparison to it in modern times, but when you think about DOGE, thus far, it's largely been on one side of the balance sheet, right? It's been on the debt and the liability side. At some point in concert with the Treasury Department, we expect they'll move to the other side of the government balance sheet, specifically assets, right? We saw this in now Treasury Secretary Bessent's confirmation hearings, talking about monetizing the asset side of the US balance sheet.
So stay tuned. It's probably as a component maybe of that April 1st trade report, but these are the creation of an external revenue service, perhaps the Fanny Freddie recap and release market access charges. I think there are going to be a lot of ideas around this with potentially the establishment of a sovereign wealth fund and other things. But pretty much every policy item is on the table if not the menu. The range of policy outcomes is probably as wide as it has ever been. We're not preordaining any of them, but the right and left tails here are just massive. Okay, that's a wrap. This has been Chris Krueger with TD Cowen's, Washington Research Group for Street Cred.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.
