Investing.com -- Deregulation, the process of removal or reduction of government regulations, is expected to be the cornerstone of Donald Trump’s second term. In a Monday note to clients, strategists at Jefferies presented 10 insights to better explain Trump's deregulatory and government restructuring agenda.
1) Federal agencies issue around ~3k rules per year, 10x higher than the number of new laws: Jefferies explains that rules or regulations are developed by the executive branch, utilizing authority delegated to it by legislation. In contrast, laws are crafted by Congress through a process of debate, voting, and approval by the executive.
2) Only ~10% of rules are “economically significant”: While federal agencies issue thousands of rules, only about 10% are deemed "economically significant," meaning they have a substantial impact on the economy, typically over $100 million. This designation was revised in 2023 to a “significant regulatory action” with a higher threshold of $200 million.
3) Regulatory cost-benefit analysis is required for significant rules: Agencies must ensure that the benefits of significant regulations outweigh their costs.
“Our analysis shows that the benefits of the two most costly rules since '05 are estimated to exceed $3tn over their effective periods, 3x higher than the costs,” Jefferies’s report says.
4) The process for deregulation mirrors that of regulation: Deregulation follows the same rule-making process, requiring public notice, comments, and reviews before finalizing. In some instances, agencies can bypass certain steps, such as when rules affect only federal employees or lands.
5) Deregulation is not limited to one political party: Both Democratic and Republican administrations have supported deregulation at various points in history. Figures like Jimmy Carter, Ronald Reagan, and Bill Clinton, along with lawmakers like Edward Kennedy, have been instrumental in advancing regulatory reform.
6) Legal challenges can impede deregulation efforts: Under the Administrative Procedure Act, regulations can be struck down by courts if deemed arbitrary, unlawful, or procedurally flawed. The first Trump administration saw a 57% loss rate for challenged rules, higher than any recent administration.
7) Trump's regulatory focus shifts traditional Republican priorities: While historically Republicans have prioritized economic deregulation, Trump has emphasized rolling back social regulations, such as environmental standards, while maintaining certain economic interventions like tariffs and industrial policies.
8) Trump implemented two key measures early in his first term: The "one-in, two-out" rule required removing two regulations for every new one, and a regulatory cap ensured that any new regulation’s costs were offset by cuts elsewhere.
“Trump pledged to expand it to “one-in, ten-out”. “Regulatory cap” ensures the incremental costs of a new rule are fully offset by the rules being eliminated,” Jefferies strategists noted.
9) Environmental and energy regulations were major targets during Trump's first term: About 90% of the cost savings from deregulation under Trump’s first term came from rolling back environmental and energy rules. These efforts aligned with his administration's focus on reducing restrictions on the energy sector.
10) Government restructuring impacts extend beyond the public sector: Plans to streamline government operations, including potential workforce reductions, could significantly affect private contractors. For example, the top 20 federal contracts span health, defense, and other sectors, totaling over $570 billion annually.