Investment Strategy Brief
Trump 2.0: Regulation
Reprieve
February 23, 2025
Executive Summary
- Despite concerns and uncertainty surrounding tariffs, business sentiment has turned more optimistic.
- The administration has frozen new regulations, returning, in that respect, to a more business friendly approach.
- The perception of less regulation should make businesses more willing to expand their operations and drive economic growth.
- Reduced regulation should benefit small cap firms more than their larger counterparts.
- Deregulation may be an economic tailwind, particularly for small cap companies that bear the brunt of regulatory compliance.
Small business sentiment has been more optimistic in anticipation of deregulation
Shown in the left panel is the National Federation of Independent Business Small Business Optimism Index, which is a survey-based measure that reflects the degree of optimism expressed by small business owners regarding their economic outlook and the Wall Street Journal (WSJ)/Vistage Small Business CEO Confidence Index. Data in the right are the results of the National Federation of Independent Business (NFIB) monthly Small Business Economic Trends survey, which asks respondents to identify the number one problem facing their business.
- Small business confidence has increased significantly post-election as the new administration is set to tackle regulation, which is frequently cited as a top concern for businesses.
- With pre-election political uncertainty in the rearview mirror, an increasing share of businesses believe that now is a good time to expand.
The administration has frozen new regulations, returning to a more business-friendly approach
Data shown represent the estimated cost of new regulations as a % of GDP by year and grouped by presidential administration. The data point for ’24 is 4.8%, but the bar uses an axis break for visual purposes. American Action Forum is an independent, non-profit organization and is not formally affiliated with or controlled by any political group but may not be a completely unbiased source as it was established to promote “center-right” economic and fiscal policy. The use of its data should in no way be construed as an endorsement of the group’s political leaning, policy preferences or accuracy of estimates.
- Businesses perceive most regulations, independent of the purpose, as a cost to their operations, reducing efficiency and their appetite for business growth.
- The new administration has already ordered a freeze on new regulations, which may be a notable tailwind for economic growth and corporate profits.
Reduced regulation should benefit small cap firms most
Data shown in the left panel represent the share of labor costs ascribed to regulatory compliance by company size, as measured by the number of employees per establishment.
- Smaller owner-operated businesses are exempt from certain regulatory requirements and larger firms benefit from spreading regulatory costs across greater economies of scale. In comparison, small cap companies often face the highest regulatory costs relative to their size.
- Deregulation may be an economic tailwind, particularly for small cap companies that bear the brunt of regulatory compliance.
For more in-depth information on this topic, please reach out to your Glenmede Relationship Manager.
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