As I see it, the Trump administration economic agenda has several goals that will likely produce adverse near-term consequences, whether intended or not. They are:

–reducing the burden on the country of outstanding government debt by creating inflation that will lower the real value of the dollar. If there was any anticipation by the administration of possible consequences, it may have been limited to the idea that the positions, especially among foreign governments, were so large they couldn’t be sold. Holders, however, (presumably led by big international banks) quickly responded by hedging their dollar risk, sending our domestic currency down by more than 10% ytd. A huge loss of domestic wealth, but much less visible than a rise in rates.

–lowering the number of “foreigners” working in the US, using ICE to arrest and deport people of non-Anglo-Saxon heritage. The issue here is that the rate of growth of the domestic workforce is about +0.5% yearly–with the other source of real GDP growth being productivity improvements (better education/better tools). AI says deportations could reduce domestic GDP growth to zero for the next several years. That’s without factoring in any impact from a reduction in federal spending on education.

–erecting tariff barriers to stem the flow of foreign goods into the US. The extra costs this creates will, according to standard microeconomic theory (which I think is the right way to look at this case), be distributed among all parties to purchase and sale, depending on their market power. This will, I think, both reduce the variety of goods available and increase their prices, something that seems to be being borne out in reports of recent retail sales. AI says this initially results in a rise in unemployment and lower inflation. The longer-term adjustment is a return of jobs but a higher secular rate of inflation. Not a particular plus during either time period.

imagining next year

So, all in all, more famine than feast for domestic corporate profit growth

However, although the 10-k information isn’t the best, the rule I’ve mostly used is that half of the reported earnings of the S&P 500 come from outside the US. The earnings desert, so to speak, will likely mostly be in domestic sales growth. Foreign growth will likely be considerably better than zero. There may also be another earnings benefit to $US earnings of the S&P and NASDAQ, as well, from further decline in the value of the dollar, assuming foreign prices remain steady.

The strategy of holding the stock of companies with $US costs and foreign currency revenues has worked exceptionally well this year. Yes, this may be worrisome, but I don’t see a great reason to thing 2026 will start out on a much different note.

There will be better earnings growth to be had outside the US–Hong Kong and Tokyo in particular, I think. Tech aside, though, the winning formula will likely be USD costs and yen and/or HKD revenues.