Macro Strategists Juhi Dhawan and Thomas Mucha break down the busy first half of 2025, discussing DOGE, tariffs, taxes, immigration, deregulation, and more.
Macro Strategists Juhi Dhawan and Thomas Mucha break down the busy first half of 2025, discussing DOGE, tariffs, taxes, immigration, deregulation, and more.
2:30 – Tariffs are a tax
8:30 – Highs and lows of the new tax bill
16:25 – Economic boosts in AI and deregulation?
20:30 – Immigration policy and productivity
23:05 – A wait-and-see Fed
25:20 – Investment implications of a disruptive geopolitical landscape
JUHI DHAWAN: I’m going to go back to perhaps the most surprising positive aspect of what is currently a very disruptive period, which is that some of the changes the Trump administration is asking for or is, generating is actually resulting in more drivers of organic growth elsewhere, away from the United States. And that by itself is going to result in investors seeing better opportunity sets around the world, not just in the United States.
THOMAS MUCHA: The world is never static, of course, but the past few months have been more disruptive than usual. The Trump administration unwound 80 years of foreign policy in its first 100 days. Its uneven approach to trade negotiations is pressuring inflation, too. Now, its demands that Congress pass an omnibus tax and spending bill continue to roil Washington DC. And around the world, no fewer than 60 active conflicts complicate an already highly complex geopolitical picture. Through it all, global financial markets have been relatively steady, even following the US bombing of Iranian nuclear facilities on June 21. But investors are understandably nervous, and there’s a lot here to digest from a markets perspective. So, joining me today to discuss the latest developments and their potential market and macro impacts is one of my favorite returning guests, Wellington Macro Strategist and my close colleague, Juhi Dhawan. Juhi, it’s great to have you back on WellSaid.
JUHI DHAWAN: Thomas, thanks so much for inviting me back. There has been a lot going on, as you said. So, I am very much looking forward to our conversation.
THOMAS MUCHA: Well, let’s start then with the US administration’s policy stance, which obviously reverberates across the globe. So, 2025 is more than half over. What do you make of the agenda?
JUHI DHAWAN: I would say that the Trump policy agenda is defining the investment landscape, not just in the United States, but around the world. And so, there is a lot to unpack in what has already transpired in a very, very busy first half of 2025. Five key elements that I want us to discuss today: DOGE, tariffs, taxes, immigration, and deregulation. I think if we think about the start of the year, it was all about as much as $2 trillion of savings from DOGE. We have seemingly moved on from it. And the end result is savings around $160 billion. Why is it that it has fallen as short as it has? I would say because the authority of DOGE really only can tackle parts of the government that are not the biggest dollar amounts, if you will, and we are seeing the shortcomings of that in the aggregate net savings that we’re seeing there.
THOMAS MUCHA: So, it’s nibbling around the ages.
JUHI DHAWAN: Yes. Unfortunately or fortunately, the net impact in terms of how some of the agencies in Washington are feeling, the reverberations, it doesn’t feel so small to them. So, I do think there will be still impacts that we will see from the changes that were made early this year. But this has ended up being probably a smaller piece of the aggregate policy agenda as we look forward in terms of where we will see the impact coming through.
THOMAS MUCHA: You mentioned five variables. I’m going to get into all of these. Let’s start with, Trump’s on-again, off-again and highly transactional approach to tariffs, which, as you’ve pointed out, pulled imports forward in the first quarter. Then, rather predictably, they fell off a cliff in the second quarter. So, near term, what’s the likely impact here on earnings, inflation, investment spending? I mean, how are you really parsing this uncertainty in the tariff situation?
JUHI DHAWAN: Tariffs are a tax, and that’s the first thing that most countries are realizing. It means slower growth going forward. And so, what we’re seeing on an aggregate basis is that many countries around the world have actually accelerated their monetary policy easing as they realized that trade might be unduly disrupted and negatively impacted for large exporters. In the United States, when I think about the surge of imports and the pull forward in demand that took place as companies and consumers tried to get ahead of these tariffs, we saw, for instance, a surge in auto sales, which are now starting to fade. We saw the surge in imports you spoke about. And in aggregate, I believe that S&P earnings for this year were trimmed by something like six percentage points as a result of the tariffs.
Understanding the range of tariffs is really important for companies to be able to make effective investment decisions. In this regard, it is not just the country tariffs but also sectoral tariffs that have been quite disruptive. We do expect more decisions to come through in coming months around these tariffs. And I expect the effective tariffs rate for the United States to settle somewhere in the teens.
And I think that ratcheting down has actually been an important piece for, financial markets finding their footing again because a tax hike that large that quickly would have been really onerous. We are going to still see the impact of these tariffs come through in higher goods inflation in coming months, also concerns about margins for companies who will have higher cost pressures, as well as negative impact on the activity, both on investment spending, but also in terms of aggregate trade. So, still working our way through, what certainly has been an important piece of all of what the administration is trying to do in terms of reorienting trade flows.
THOMAS MUCHA: They are believers in tariffs. We do have a lot of questions about where they’re going to end up in the medium term, long term. China is one piece of it. Europe is another big piece of the tariff uncertainty. How are you thinking about the impact to Europe? The EU is about to ramp up spending on a bunch of strategic sectors. So, what are your views about potential winners and losers across the pond?
JUHI DHAWAN: I think one of the most important pieces of why I believe the policy agenda has such global ramifications is that every action has a reaction. And one of the most important pieces of legislation that took place earlier this year came out of Germany. Germany announced a multiyear plan, really almost spanning a decade, roughly about a trillion euros to be spent in defense and infrastructure plans to shore up its security but also to boost its competitiveness and improve its domestic prospects. Now, we all know Germany has been and remains a powerhouse for exports. So, this reorientation of trade but also of foreign policy was immediately impactful. The starting point of Germany having an excellent balance sheet from the government standpoint allowed them to take this important step. And the end result, if you will, is not just a stronger currency and better earnings prospects for those overseas markets, but also a realization that diversification of portfolios across the globe is an important consideration when there are these moving pieces on the chessboard.
THOMAS MUCHA: I completely agree that directionally Europe is going to spend more. We just had the NATO summit, where European governments and leaders promised to spend 5% of their GDP on defense. So, I do think that’s a durable theme and a durable development, again, rooted in national security. But as you say, there are other issues involved here. Now, you and I, Juhi, are recording on July 1. There’s a lot going on in Washington regarding what’s happening with Congress and the president’s spending bill. How are you thinking about the macro implications of what’s being debated now and what we’re likely to see?
JUHI DHAWAN: The tax bill, as many will remember from the first Trump administration, was a signature piece of legislation the first time around. And for many investors coming into this year, there was a lot of excitement about the policy agenda before tariffs became a very, very disruptive part of the investment environment. I do think what we’re seeing in the tax bill as it’s being debated is extremely important for near-term growth prospects but also for the medium term. So, some aspects of this tax bill that I especially like are rooted in not only extending the tax cuts that were legislated in 2017, but making permanent certain pieces of legislation that have expired in recent years. I’m talking about tax credits for research and development, bonus depreciation, as well as higher-interest deductibility. Some of these in particular are important for smaller companies, where these costs can be especially high and have proven to be quite penal in recent years. So, the effective tax rate for some of these companies who are in innovative fields will actually come down as a result of these changes.
So, I like those aspects of the bill very much. There are also other aspects of the bill that help consumers. They are not permanent, but they will help boost growth into 2026. So, there is a front-loading aspect of this bill that I think is worth considering. This will include enhanced credits for senior citizens, some measures on child tax credit as well as no tax on tips or overtime up to a certain threshold of income. So, there will be a boost for consumers as well as what we’re seeing for companies. There are some offsets. I would be remiss if in this discussion we don’t talk about the deficit.
THOMAS MUCHA: — That was my next question —
JUHI DHAWAN: I know I can see it on the tip of your tongue, Thomas. So, I promise to come back. But what I do want to first just mention is, two areas where there are significant cutbacks even though some of them are backloaded. One is almost a trillion dollars of savings from Medicaid over the next 10 years and about a $500 billion of savings from the IRA plan that the Biden administration had put in place, which effectively reduces the number of years that some of the tax credits for green energy were in place for.
So, there are some savings. And those savings mitigate the cost of the bill even though it is a very large bill. So, all of that, of course, means that the government deficit will stay elevated in the United States. And this will remain a point of vigilance for most investors across the globe, as it’s quite unusual to see a country run such a large fiscal deficit outside of recession.
THOMAS MUCHA: You mentioned the deficit and the challenges for investors around the world. In your mind, Juhi, is there anything exceptional about the US economy — I’m going to use that phrase — that might allow the US to carry those large debt loads wherein — whereas other countries may not have that sort of embedded advantage?
JUHI DHAWAN: Over the last many decades, the US has faced many challenges. And something that has been a bedrock of stability has been its institutional certainty. The idea that we know what the governance structure in the United States is and the importance of rule of law have been attributes that have been positively viewed by many investors alongside excellent profitability that has come through for those investing in US assets. Still, I would say the term “exceptional” often comes when there is perhaps a lack of alternatives elsewhere, and I’m going to go back to perhaps the most surprising positive aspect of what is currently a very disruptive period, which is that some of the changes the Trump administration is asking for or is generating is actually resulting in more drivers of organic growth elsewhere, away from the United States. And that by itself is going to result in investors seeing better opportunity sets around the world, not just in the United States. And I think the term “exceptional” might start to fade in that context, not just as people question some of the policies in the US but really also start to think about what else may look attractive on its own basis.
THOMAS MUCHA: That makes sense to me as well. I do think we’re in a world of a lot more diversification and a lot more differentiated outcomes. One of the other justifications for cutting government spending to offset tax relief while allowing the debt ceiling to rise is that the ensuing boost to GDP and productivity may enable us to grow our way out of debt. What do you make of that argument?
JUHI DHAWAN: The best part of the bill, that I mentioned to you, which can encourage investment spending. And investment spending is particularly liked by nerdy economists like me because it can result in growth without inflation. And that gives you the magic word of “productivity.” If we can sustain growth at a higher point, it’s easier for us also to manage the very large debt load and rising deficits that the country faces. And so, some of this may be spurred by government policy, and we can come to the question of deregulation in a second and maybe talk more about that. But I think what I would watch here very carefully is whether artificial intelligence and some of the changes that are taking place across the US economy — in terms of shifts by companies in how they operate their businesses —whether that can boost productivity. Just to put a couple of numbers around this, since the beginning of 2024, we have seen AI adoption almost double. And what we’re seeing is there are industries like the information industry, professional business services, to some extent financial services, where the take-up is accelerating. We have yet to see very, very large parts of the US economy really find an effective way to harness this. But if changes like that can gather speed, then maybe the possibility of higher growth potential exists in the future. And if that’s the case, it will be easier to carry our debt burden than not. Simple rule of thumb, Thomas, that we find is: if the nominal growth rate of the economy can stay ahead of the interest costs and the interest rate, it at least keeps it somewhat stable.
THOMAS MUCHA: What’s your gut tell you about the pace of investment towards AI and how that might play out? Do you think we’re on the right path?
JUHI DHAWAN: Our technology team has been very consistently talking about the reduction in cost generating in terms of these large models.
THOMAS MUCHA: Across a number of industries.
JUHI DHAWAN: Across a number of industries. But the reduction in cost in terms of adopting these new technologies. And why that matters is because when we study prior technological breakthroughs, we have seen that really the big take-up occurs at a point when it becomes affordable and effective. And I would say to you deployment is still segmented by specific tasks and industries finding a greater take-up than others because we haven’t yet found ways to harness it. But their point about that lower cost is very encouraging to me because it has often proven to be a useful marker. And so, we’re watching very, very closely the take-up that’s taking place across many industries because that boost currently just showing up in the form of cost savings, labor augmentation, but eventually the hope would be it shows up in a burst of innovation and new types of industries and accelerating job gains somewhere in the future. I’m going to put that in the five-to-10-year mark to be clear that that’s not yet something I see today in the data.
THOMAS MUCHA: Another one of those boosts — and you’ve alluded to it already — is the deregulation aspect. And so, how do you assess, the Trump administration’s efforts so far in this area?
JUHI DHAWAN: Okay. Here’s another nerdy statistic.
THOMAS MUCHA: We love them.
JUHI DHAWAN: Thomas, I like to look at the federal register as just one way of thinking about — how has the path of regulation gone in any country? And what we found is that it — the number of pages — just keeps going up into the right, i.e. as every administration comes in, we see more and more regulation take place. Now, there is a place for regulation. We certainly think it’s important for markets to have some kind of governance and structure in place. But sometimes the cost of regulation can escalate to the point where it starts to really hurt business. And in some cases, we have heard from small businesses, from some manufacturing areas that this cost has really gotten quite oppressive. So, we are watching the deregulation drive with interest to make sure that it eases the burden but not excessively. Right? There’s this fine balance between — you want onerous and nonessential regulation to go away, but you don’t want it to become an area that is neglected and then eventually becomes a problem. We have yet to see the full fruits of this area. And so, when I think about the second half of this year and into 2026, I actually think the deregulation drive will pick up. Specifically, the financial services industry is an area where I do expect to see more shifts occur. Besides financial services, I expect the administration to be quite active in the field of energy. The energy transition remains quite important. For this administration, it is really also important to level the playing field between fossil fuels and green energy. I also think new, exciting areas like stable coins are in the news a lot, and I think the overall stance of deregulation and its impact can really be through reducing costs of doing business but also by increasing the certainty of the regulatory environment, which encourages investment.
THOMAS MUCHA: Okay. So, we’ve touched upon most of the pillars, of the Trump administration agenda that we laid out at the beginning. I want to delve into the last one here of immigration. You’ve talked a lot about the macro implications of aggressive immigration policy. Where do you think we stand currently? Where do you think we’re going? And what do you think the key macro implications are of this?
JUHI DHAWAN: From a macro perspective, when we think about the building blocks of where growth originates from, it is labor force growth and it is productivity. So, we talked a little bit about productivity. So, we’re now going to talk about the shift in immigration policy. The Biden administration already put in place tougher restrictions starting the middle of last year. And so, what we see now is, from the end of 2023 to about now, we have seen a 95% decline in border crossings on the southwest border of the United States — that’s a big change. How is it going to show up in the economy? In aggregate, undocumented workers account for roughly 6% of the US workforce. But in sectors such as construction and agriculture and food processing, we are talking about 20% to 40%. So, we are going to see an uneven impact as this occurs. This bill includes additional funding for border security. So, I expect the administration to stay tough in this area. But I think the impact over time is really important to consider because when an economy ends up with fewer workers, there’s more concerns about wages and there’s more concern that we can see inflation as a result. So, I think there’s a fine balance between staying and ensuring legal immigration and then having to face some of these really tough issues if we have shortages somewhere in the future. My out-of-consensus and probably hard-to-believe idea would be that perhaps in the next five years we will see immigration reform take place in this country because I think we finally are going to get to the point where labor scarcity really asks both sides to get together and get there. Hard to believe today but maybe out there somewhere.
THOMAS MUCHA: I believe anything is possible in the current political environment. Well, Juhi, you sort of led me to my next question with your comment about inflation, and that’s of course the Fed. So, where is the Fed sitting on all of this, not only on immigration but all the other variables that we’ve, walked through today?
JUHI DHAWAN: The Fed remains in a wait-and-see mode because it is concerned about the stagflationary impact of the administration’s tariff policies, especially concerned that as prices go up because of tariffs, companies may try to push prices further. It thus wants to keep inflation expectations anchored and has waited on making any adjustments on interest rates because of this concern. On the other side, it is aware that this is also a demand shock. And as activity weakens, it is mindful of spillover impacts into the employment base.
THOMAS MUCHA: You know, you mentioned earlier, Juhi, one of the advantages the US economy has had over the years is this institutional stability, and I know you have a lot of contact with the Federal Reserve. What’s the sense that you get from your contacts there about this institutional stability of the Fed, given all of the rhetoric that we’ve heard out of the White House?
JUHI DHAWAN: The Fed is steadfast in the goals that have been laid out by Congress and in the mandates it has chosen to follow. They continue to talk about really waiting to assess that net impact without getting involved in the political rhetoric around should policy X or Y go through. There will be one really important announcement that will occur in the back half of this year. And that will be possibly some news about who the next Federal Reserve chairman might be. And I think this will be very, very important for markets because a credible Federal Reserve chair is part of that institutional structure which has been very important for investors to know that the Federal Reserve will do independently what it thinks is right for economy.
THOMAS MUCHA: That makes sense to me as well.
JUHI DHAWAN: Thomas, we’ve talked so much about the policy agenda of — spanning taxes and deregulation to tariffs, but an area which has perhaps been one of the most disruptive and consequential of this current administration have been foreign policy shifts. You are our geopolitical expert. So, I definitely want to hear how you’re thinking about the changes that have already occurred and your expectation of whether more such shifts will occur in the remaining part of the Trump administration.
THOMAS MUCHA: So, you’re correct. It’s been highly disruptive and will continue to be profound moving forward. And I do think geopolitics and geopolitical risks and these shifts in the US foreign policy backdrop are an increasingly important variable for the markets. Given the stresses that we’ve seen in the geopolitical system — you know, regular listeners of the podcast will know — that I believe it’s prudent to gain exposures, to these long-term key national security themes that I think are likely to outperform in this environment. I’ve talked a lot about legacy defense, new defense technologies, climate resilience, green tech, and on and on. So, I do think this time of geopolitical unrest, this time of profound change in the Trump administration policy is likely to create all sorts of investment opportunities that sit alongside these risks. Of course, that leads to the current geopolitical crisis of the day, the Middle East and what’s been unfolding over the past few weeks.
Fortunately, I think we’re seeing a moment of relative calm following 12 days of fairly intense combat that, of course, you know, drew in the US military. But I do think uncertainty is likely to remain high. All sides here continue to assess battle damage, the state of Iran’s nuclear program, its capabilities, whether Tehran can now consider going into a negotiated settlement, which is what President Trump continues to emphasize. We’ll know more, of course, as time goes on.
JUHI DHAWAN: Thomas, the shifting tectonic plates of geopolitics — you have guided us so well in thinking about the importance of not, getting complacent, when these kinds of shifts occur. I think this is really important from an investment standpoint, not just in terms of the risks that it poses, but also staying vigilant in not assuming traditional relationships and markets will hold the way they have in the past.
THOMAS MUCHA: I do think it’s important for all investors, regardless of asset class, regardless of strategy, regardless of your specific exposures, to have a view on geopolitics. It’s a larger tile of this broader investment mosaic that we like to talk about here at Wellington.
THOMAS MUCHA: So, Juhi, that was a tremendously, helpful conversation for me. We covered a lot of ground, as we expected. And one again, thank you so much for being here. Macro strategist, Juhi Dhawan. It was great to have you back on WellSaid. And please come back again soon.
JUHI DHAWAN: I appreciate the invitation. Thank you so much.
Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced July 2025.
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