Investing.com -- Donald Trump regaining the White House and his Republican party winning majorities in both chambers of Congress is currently the "most likely" outcome of this November's crucial U.S. election, and may lead to an uptick in the American budget deficit, according to analysts at Piper Sandler.
In a note to clients this week, the analysts predicted that this scenario -- dubbed a "GOP sweep" -- would particularly see the extension of sweeping 2017 tax cuts. Some provisions of the reforms are set to expire next year.
However, they do not expect Republicans to expand on the law despite Trump recently floating the ideas of slashing the corporate rate to 15% to 20%, exempting tips from income tax, or replacing parts of the income tax with tariffs. Meanwhile, the analysts assumed that ongoing renewable energy subsidies are likely to be the only new "offset" to the tax cuts.
They also said that Trump's proposed 60% import tariff on China would have the "most immediate impact" on the deficit. Crucially, the analysts noted that, because Trump already carried out an investigation into Beijing's trade practices and implemented tariffs during his previous tenure in the White House, he may be "quicker this time" to launch new restrictions.
"[W]e assume it will take roughly eight months for the tariffs to take effect, so they would start in the third quarter of 2025," the Piper Sandler analysts said.
They flagged the decision is "unlikely to produce much in the way of revenue" for U.S. government coffers, adding that a tariff rate as high as 60% is instead intended to "discourage trade" rather than bring in funds.
The tax cut extension and China tariffs, as well as an anticipated boost in discretionary spending, are tipped to increase the deficit by about 1.5% of gross domestic product when compared to current budgetary laws, the analysts projected.