CICC: The Trump 2.0 era begins.

CICC released a research report stating that on January 20th local time (early morning on January 21st Beijing time), Donald Trump officially took office as the 47th president of the United States, ushering in the "Trump 2.0 era." On his first day in office, media reports indicated that Trump would sign multiple executive orders related to national energy emergency, immigration, trade, etc. The priority, speed, and strength of these policies will directly determine their impact on inflation, growth, and asset trading logic. Based on the situation on his inauguration day, Trump's initial policy focus may be on immigration and energy policies, with the market paying attention to tariff policies being relatively mild. If gradual measures are taken subsequently, and growth policies such as tax cuts are introduced more quickly, it will be favorable for risk appetite. CICC's main viewpoints are as follows: Inaugural speech: Declaring the "golden age of America," focusing on immigration and energy, with no details on trade policies Overall, the speech continues to focus on the major directions outlined during the election campaign, with a specific focus on immigration and energy, but lacking details on trade policies. Specifically, 1) Immigration control: Trump mentioned in his speech that he would "declare a 'national emergency' on the southern border, stop all illegal entry, and reinstate the 'Remain in Mexico' policy," consistent with his previous stance; 2) Return to traditional energy sources: Trump mentioned in his inaugural speech that he would "declare a national energy emergency," reiterating his campaign pledge to increase oil and gas extraction to control inflation and to terminate the "Green New Deal," cancelling the Biden administration's electric vehicle mandate. 3) Trade policy: This speech did not provide specific details on tariffs. Trump stated that he would reform the trade system and establish an external Revenue Service to collect tariffs, but did not mention the tariff rates. Previously, multiple versions of tariffs have emerged in the past few months, especially recently, causing market uncertainty. During the campaign, Trump proposed a universal 10% baseline tariff, a 60% tariff on China, and a 100% punitive tariff on critical industries. He later stated that he would impose a 25% tariff on Canada and Mexico, and an additional 10% tariff on China. Regarding other policy proposals from the campaign, such as tax cuts and stimulus, not much was mentioned in the speech, and we may have to wait for subsequent executive orders or developments, such as 4) Tax cuts: Trump advocates extending or making permanent the period for individual tax cuts and reducing the corporate tax rate from 21% to 15%; 5) Stimulus increase: Increase in infrastructure investment by reallocating unused funds from the "Inflation Cut Act" and "bipartisan infrastructure bill" to areas like "roads, bridges, dams"; support for the development of the AI industry by possibly canceling Biden administration regulations in the AI field. 6) Support for cryptocurrencies: During the campaign, Trump indicated that he may cancel Democratic regulations on cryptocurrencies, among other things. Executive orders: Signing multiple policies related to immigration, energy, trade, etc. Executive orders do not need legislative approval to implement policies, making them an effective way to observe Trump's policy priorities. Up to the time of the report's release, Trump had signed multiple executive orders on his first day in office, including revoking the electric vehicle mandate, withdrawing from the Paris Climate Agreement and the World Health Organization, and imposing tariffs on Canada and Mexico. Focus on immigration policy: Tightening immigration policy is one of Trump's core policies in this administration, and the president has high autonomy in this regard. The executive orders signed on the first day include 1) Deportation of illegal immigrants: Trump signed executive orders on his first day to fulfill his campaign promise of the "largest deportation plan in history," with Polymarket predicting an 80% probability of immigrants being deported on Trump's first day; 2) Ending birthright citizenship: The 14th Amendment to the U.S. Constitution grants automatic citizenship to anyone born in the U.S., but Trump stated in a December 2024 NBC interview that he would terminate this law on the first day; 3) Ending open border policies: In October 2024, Trump stated that he would "end all of the Biden administration's open border policies" and "return" to Title 42 of the Public Health Act, directly deporting illegal immigrants at the border. On his first day in office, the Trump administration ceased using CBPOne, an application allowing legal entry to immigrants in an orderly fashion. While the "loud" immigration policy has become a fundamental position for Trump that he must carry out on a large scale, not only is it costly, but it can also impact inflation by affecting employment supply. This is a burden that may be difficult to bear in the 2026 midterm elections, so a strategy of "picking up slowly and slowly putting down" may be better. The "signing plan" on the first day faces two constraints: 1) whether state governments will cooperate - over the past decade, approximately 70% of cases handled by ICE in the U.S. were transferred by other law enforcement agencies, requiring coordination and cooperation among states for a large-scale deportation plan; 2) ICE has a budget shortfall of about $230 million, which does not even include the $31.5 billion needed for a large-scale deportation operation, potentially delaying the progress of the deportation plan. Returning to traditional energy sources: Trump declared an energy emergency on his first day in office. This move will allow the federal government to reduce approval requirements for energy projects, accelerate power plant construction, and relax restrictions on fossil fuel exports. His inaugural speech and first-day executive orders delivered on previous promises: 1) Revoking the Biden administration's "electric vehicle mandate" and terminating the "Green New Deal"; 2) Accelerating U.S. oil production - Trump stated on January 8th that he would immediately overturn Biden's offshore drilling order and increase oil supply to lower energy costs and control inflation. 3) Withdrawing from the Paris Climate Agreement, the White House announced that the U.S. would withdraw from the Paris Agreement, but has not yet provided a specific timeline for withdrawal. Starting from February 1st, tariffs on Canada and Mexico may be increased.Additional Tariffs: Trump has indicated that he may impose a 25% tariff on Mexico and Canada starting from February 1st. The specific details have not been revealed yet, causing the US dollar index to rebound in response.Before officially taking office, Trump had proposed different versions of tariff plans, even announcing partial tariffs to be immediately implemented through the declaration of a national emergency under the IEEPA. The market consensus was for a 10% incremental tariff on certain countries, with few expecting a direct 60% tariff on China and a 10% global baseline tariff, as the potential inflationary supply shock, similar to that of the immigration policy, is also a "realistic constraint" that needs to be faced. On his first day in office, the tariff policy was not directly implemented, which was better than market expectations, explaining why stock and currency markets in China and Vietnam had minimal reactions. Pardon of Capitol Hill Rioters: On his first day in office, Trump signed an executive order pardoning about 1500 participants in the Capitol Hill riot. Cabinet Progress: The Secretary of State has been confirmed, and the other four cabinet members have been approved through Senate committee votes. The new Congress was seated earlier than the President's inauguration on January 3, 2025 (with the Republicans leading by 5 seats in the House and 6 seats in the Senate). Since January 14, 16 cabinet nomination hearings have been confirmed. As of the time of reporting, the Secretary of State has been confirmed, and the appointments of the other four cabinet members have been approved through Senate committee votes. Observation points after the "first hundred days" of the new policy: more executive orders, cabinet member stances, the new fiscal budget, and congressional speeches. Based on the situation on his first day in office, it seems that Trump's initial policy focus may be on immigration and energy policies, with the market focusing on relatively moderate tariff policies. This indicates that although some inflationary policies are forward-looking, they are relatively moderate, with growth-oriented policies focusing on tax cuts and other developments, which is favorable for market risk appetite. However, some policies that were not mentioned as a priority on the first day do not mean that their importance will decrease in the future, as with tariffs, although hardly anyone expected a large-scale implementation of tariffs right after taking office, it's also hard to rule out the possibility of future escalation. Therefore, the observation points after the "first hundred days" of the new policy may provide more information, such as more executive orders in the next month, confirmation of more cabinet members, congressional speeches, and the new president's budget proposal. More executive orders issued: more policies proposed during the "first hundred days" of the new administration. In his first term, Trump signed four executive orders in the first week and 33 executive orders within the first hundred days, including restrictions and weakening of Obamacare, withdrawal from the Trans-Pacific Partnership (TPP), renegotiation of the North American Free Trade Agreement (NAFTA), and the initiation of the deportation of illegal immigrants. As of now, the initial focus seems to be more on immigration and energy policies, while the market is more concerned with relatively moderate tariff policies. More executive orders in the future may provide more policy direction and determine asset trading. Similar to early 2017, current asset trading has also entered a waiting phase for confirmation, waiting for the direction of future policies before making decisions. Confirmation of more cabinet members: Focus on the Trade Representative hearing of CKH HOLDINGS at the Department of Commerce. In terms of procedure, progress on tariffs in the Trump 2.0 era may be faster than in the first term, as imposing tariffs through the International Emergency Economic Powers Act (IEEPA) or through a Section 301 investigation could theoretically be implemented quickly. However, at present, information regarding tariffs is unclear, and implementing tariffs also has an inflationary "realistic constraint" for Trump himself. Therefore, the key issue is how to impose tariffs, which may rely more on gaining additional information from testimonies such as those from Lighthizer. In a hypothetical scenario, 1) if tariffs on China are at a rate of 30-40%, the impact may be more similar to that after April 2019, as it meets expectations and the impact is manageable. The bank's calculations show that a 30-40% tariff would bring relatively limited external demand shock, with sufficient domestic stimulus policy tools to counteract it (requiring an increase in the deficit rate of approximately 0.5%-0.7%). 2) However, in an extreme scenario, imposing tariffs at the maximum rate (60% tariffs in addition to other measures) could still have an impact, as market expectations are inadequate, the impact is significant, and policy hedging also takes time. Clearer directions for fiscal spending and cuts: Resolution of the debt ceiling and the new fiscal year budget from late January to March. In general, the federal budget process begins on the first Monday of February, but the new administration may cause delays. Since most of the individual income tax provisions of the 2017 tax reform law will expire in January 2026, Trump may need to push for tax cuts earlier than in the previous term. If legislation is to be completed before the provisions expire in 2026, tax cut policies may need to be completed within the "budget reconciliation process" in 2025. Regarding the debt ceiling, U.S. Treasury Secretary Yellen stated in a letter to Congress last Friday that the federal government's debt is about to reach the limit, and the Treasury Department will suspend debt issuance from January 21 to March 14. Currently, the balance in the U.S. TGA account is around $720 billion, and based on the fiscal revenue and expenditure levels from the same period in 2024, it could be sustained until mid-year. In the baseline scenario, the difficulty of resolving the debt ceiling may be relatively small, as the reconciliation process to resolve the debt ceiling allows the Senate to pass it with a simple majority of 51 votes (the Republicans control the Senate with 53 votes), and the Republican Party also holds the majority in the House of Representatives (219 seats vs. 215 seats for the Democrats). More comprehensive governing philosophy: Congressional speeches in February-March. The State of the Union Address is a regular annual event for the president, and in the first year of a new president's term, it is traditionally called the Address to a Joint Session of Congress, with a consistent format. The president must address a joint session of Congress, providing an analysis of the state of the nation, legislative agenda, and other national priorities. The State of the Union Address usually takes place in January or February, but there are exceptions, especially during a change of presidency, such as Biden's first address in March 2021. In 2017, Trump mainly proposed tax cuts, regulatory reforms, infrastructure plans, immigration, trade, healthcare, foreign policy, etc., but the overall presentation was mostly directional, with specific data and policy goals only mentioned for the proposed infrastructure plan of $1.5 trillion, while other areas like tax reform did not provide specific details. This indicates a shift towards a more comprehensive governing philosophy compared to the previous term.The same situation may also occur, pay attention to whether any new claims or more details are presented.Asset implications: Moderate tariff policies or boosted risk appetite may strengthen the pro-cyclical direction in the medium term. US Treasury rates: There are short-term trading opportunities, as inflationary policies may slow down or alleviate some concerns. US stocks: Moderate tariff policies or boosted risk appetite. US dollar: Overall or slightly strong. Neutral to bullish on commodities, with a focus on short-term overbought conditions in gold.