Amid the chaos and uncertainty unleashed by tariff wars and foreign adventurism, it is easy to overlook US President Donald Trump’s administration’s five domestic policy initiatives that could fundamentally reshape financial markets and, by extension, the broader global economy. Although it remains unclear how (or even if) these changes will be implemented, investors, corporate leaders and policymakers cannot afford to ignore them.
First, proposed changes to the US Internal Revenue Service’s guidelines could enable the government to tax sovereign wealth funds on direct lending and equity stakes in private companies. Currently, these funds enjoy tax-free status on their US investments, much like most institutional investors. Eliminating this exemption would likely prompt them to divest affected holdings and reassess their overall exposure to the US, as higher tax liabilities would reduce after-tax profitability and raise the minimum performance threshold required to justify investing in US assets.
The economic implications could be far-reaching. Last year, sovereign wealth and public pension funds poured US$132 billion into the US, with sovereign wealth funds accounting for two-thirds of that total. Given the scale of these flows, even modest reallocations would have significant consequences for private markets and credit conditions.
The second potential change is Trump’s proposed 10 percent cap on credit card annual percentage rates (APRs), which could materially affect the consumer credit landscape. While the stated goal of the one-year cap is to lower borrowing costs, it might prompt lenders to tighten standards and restrict access for borrowers with lower credit ratings. Those shut out of mainstream lending would then be forced to seek higher-cost alternatives, including payday lenders, whose annual APRs can reach 500 percent and are banned in six states and the District of Columbia.
Banks would also feel the impact, as credit-card issuers would earn less interest per customer. Estimates suggest that such a cap could cause a 20 to 25 percent decline in net income for JPMorgan, the largest credit-card issuer in the US. At the same time, it remains unclear whether lower interest rates alone would meaningfully reduce default risk among already distressed borrowers.
Third, Trump signed an executive order aimed at curbing large institutional investors’ purchases of single-family homes. This measure has been positioned as a response to the US affordability crisis, marked by elevated prices, persistent shortages and sales approaching historic lows. By restricting institutional ownership, Trump aims to ease competition for would-be homeowners, who are increasingly priced out of the market.
However, large institutional investors control only 2 percent of the US single-family housing market. While Trump’s restrictions could ease demand pressures in certain metropolitan areas where institutional investors own more than 20 percent of single-family rentals, such as Atlanta, Georgia, and Jacksonville, Florida, reduced demand could also put downward pressure on home prices, hurting existing homeowners and dampening local economic activity.
Fourth, the Trump administration is seeking to limit the influence of proxy advisory firms, particularly Glass Lewis and Institutional Shareholder Services, over corporate governance and shareholder voting. In December last year, Trump signed an executive order instructing the US Securities and Exchange Commission (SEC), the Federal Trade Commission and the Department of Labor to review and potentially revise the regulatory framework governing the industry, citing concerns about the firms’ role in shaping votes on shareholder proposals, board elections and executive compensation.
Reducing the influence of proxy advisers could make the outcome of shareholder votes less predictable and require asset managers to rely heavily on their own analysis. The move would also likely weaken the firms’ ability to influence how other shareholders, including smaller and retail investors, vote on issues such as executive pay, environmental proposals and social policies. JPMorgan Asset Management has already severed ties with major proxy advisory firms and replaced them with an in-house, artificial intelligence-powered platform.
However, building internal capabilities requires resources. While this might be manageable for large companies, smaller firms would face higher costs, which they would ultimately pass on to investors. Activist shareholders, who often rely on proxy advisers, could also find it more difficult to gain traction.
Lastly, the SEC is considering a shift to a semi-annual reporting regime for publicly traded companies. After more than five decades of quarterly disclosures, the proposal is framed as an effort to curb short-termism and ease compliance burdens.
While semi-annual reporting is common in parts of Europe, reducing the frequency of required disclosures could weaken market transparency. Quarterly reports provide investors with regular updates on sales, margins and costs, and they serve a useful disciplining function within large organizations. Fewer synchronized disclosures could increase information asymmetry, benefiting well-resourced institutional investors over smaller market participants.
Beyond these policy initiatives, broader monetary developments could also transform the financial landscape. While markets have responded positively to Trump’s nomination of Kevin Warsh as US Federal Reserve chair, there remain concerns about the future of central bank independence.
At the same time, the Fed has resumed its purchases of Treasury bills, currently buying roughly US$40 billion per month in T-bills and other short-term government bonds to maintain adequate reserves in the banking system. Trump has also ordered the housing-finance agencies Fannie Mae and Freddie Mac to purchase US$200 billion in mortgage bonds, claiming that this would lower mortgage interest rates and counter the “lock-in effect” constraining housing supply.
Moreover, among institutional and retail investors the GENIUS Act, which allows private companies to issue US dollar-backed stablecoins, has reinforced the sense that policymakers are more willing to accommodate financial innovation. By signaling a more permissive regulatory environment, the legislation has helped bolster investors’ risk appetite.
The clear takeaway is that the US policy and regulatory environment is changing rapidly, potentially altering valuation dynamics, capital flows and the overall architecture of financial markets. Investors and companies that underestimate the impact of these shifts do so at their peril.
Dambisa Moyo, an international economist, is the author of Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth — and How to Fix It.
Copyright: Project Syndicate
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