The results of the 2024 presidential election are in, and the American retail industry is certain to feel the impact of a shift in government policies.

“Not for the first time in his life, Donald Trump has stunned the nation and the world. His victory, although not entirely unexpected, bucks both the popular narrative and numerous predictions. It also means that Trump policies, many of which people thought they had seen the back of, will come back into play,” GlobalData managing director Neil Saunders told Inside Retail.

“For retail, a Trump victory brings a mixed bag of positives and negatives, with a large dose of uncertainty.”  

Potential tax breaks in store

“The main positive for retail,” the analyst stated, “is that President Trump will almost certainly renew the tax cut package he introduced during his first term in 2017, which was due to expire at the end of 2025. This will be broadly helpful to consumer incomes, although retailers should not expect to see a surge in spending as it is about rolling over an existing policy that is already baked into consumer behavior.”

Saunders noted a possibility of further tax cuts across the board, facilitated by a friendly Congress. However, the soaring budget deficit will inevitably act as a constraint here.

“As such,” Saunders elaborated, “it’s likely that new cuts will be targeted and focused on exempting tips and overtime pay from income tax and allowing households to take more deductions. In the round, this will put more money into consumers’ pockets and will bring a small boost to retail spending.”

The GlobalData director suggested that another benefit for retailers will come from Trump’s view that the corporate tax rate should be cut further, possibly to 15 per cent. This tax cut will be especially beneficial for businesses’ retail earnings and will help facilitate retail investment.

The trouble with potential new tariffs

On a more pessimistic note, Saunders warned that many retailers are likely to suffer from Trump’s proposals on tariffs. 

“While immediate action is unlikely as any new tariffs would take time to implement, the threat of increasing tariffs on China to 60 per cent and on other countries to 10 per cent to 20 per cent would create an enormous headache and add significant additional cost for retail,” he said.

Despite the newly elected president’s assertions to the contrary, tariffs are paid by the companies or entities importing goods and not by the countries themselves.

“This means the cost of buying products from overseas, whether directly or as an input for manufacturing, would rise sharply,” Saunders forecasted. 

Also, “given the trade between Chinese manufacturers and US retailers, a strict tariff policy would mean retailers initially either taking a massive hit on profits or being forced to put up prices, which would fuel inflation and dampen retail volume growth.”

Supply chains will eventually adjust to a new tariff regime, Saunders said, but this will not happen overnight and will be incredibly disruptive. He expressed hope that the tough talk on tariffs is more of a negotiating ploy and that what is finally implemented will be relatively modest in scope.

“A side effect of tariffs and higher prices would be interest rates staying higher for longer,” Saunders mused, “which would be unhelpful for the housing market which, in turn, will act as a drag on home-related categories. While Trump promised lower interest rates, and wants more control over the setting of rates, it is not in his immediate gift to enact this kind of change.”

On regulation, Saunders expects the hostile approach of the Federal Trade Commission to mergers and acquisitions to be reset and replaced with a worldview that is more favorable to corporate dealmaking.

This does not necessarily mean that big deals like Kroger-Albertsons will be waved through, he said, but it does mean other deals such as the one between Tapestry and Capri are likely to receive a far warmer reception than they would have under the Biden administration.

As Saunders told Inside Retail, Trump is not a free-marketeer and some political overtones, including a slightly anti-big tech bias, may remain in regulatory politics. 

“Despite the shock change, changes happen at the margins and occur [gradually] over time,” he noted.

“A second Trump administration will not collapse retail, nor will it propel it to dizzy heights. It will simply change the gradient of the trajectory and the tonality of the policies retailers need to deal with.”