Here's what a Trump economy could look like

Carlo Allegri | Reuters

Donald Trump

Behind all of the campaign rhetoric, President-elect Donald Trump's victory was based heavily on his supporters' deep frustration with the direction of the U.S. economy.

Trump has vowed to change that. It remains to be seen just how.

Like most of his campaign pledges, Trump has set big goals for his economic policies, promising to create 25 million jobs over 10 years and increase the pace of growth to 4 percent a year, more than double the year-over-year pace of the last 12 months.

The plan was short on specifics, which has left investors and business leaders now waiting to see which of the economic policies he'll move to put in place and the team the assembles to do so. Here are some of the key issues to watch:

Government spending

One of Trump's signature promises, repeated in his victory speech, is a massive infrastructure spending program.

"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," he told a cheering crowd early Wednesday morning. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it."

Trump has also promised to boost U.S. military spending.

The plan will likely win bipartisan support — rival Hillary Clinton also backed big spending on infrastructure — especially if funding is widely disbursed across congressional districts of both parties. Much like the post-recession stimulus program, the money would provide a strong boost to U.S. growth.

Jobs

The investment in infrastructure could also create millions of relatively high-paying jobs. It remains to be seen though, whether there are enough skilled workers to fill them. With the job market already tightening, some employers are having a tough time filling skilled positions.

Trump's jobs program also faces a major hurdle created by his signature pledge to restrict immigration. Economists generally agree that a slowdown in the growth of the labor force in the last decade has created a major headwind for economic expansion. Restricting immigration, let alone deporting millions of immigrants already in the U.S., would further slow the expansion of the pool of workers to fill the jobs Trump has promised to create.

Tax cuts

Trump has also promised as major overhaul of the tax code, a long-overdue reform made more likely by Republican control of both houses of Congress.

Trump has pledged to cut corporate taxes and offer a one-time break to corporations that have stashed hundreds of billions in profits overseas to avoid U.S. taxes.

Trump has also promised tax cuts for all Americans, reducing the top tax bracket from 39.6 percent to 33 percent. He has also said he would close tax loopholes for high-income earners and provide tax relief for families to cover the cost of daycare.

In the short run, cutting personal income taxes would free up more money for American households to spend, which would also produce a boost to the economy. A lot depends on just how those cuts are distributed, though; lower-income households tend to spend tax cuts more readily than those higher up the income ladder.

Budget deficits

But it remains to be seen how Trump plans to pay for deep tax cuts, massive infrastructure construction and higher military spending. Various estimates have put the cost of his tax cuts alone at some $6 trillion over 10 years.

"It is hard to believe that the tea party fiscal conservatives in Congress would be willing to blow out the budget deficit like that," said Capital Economics economist Paul Ashworth. "It would put the federal debt burden on course to exceed 100 percent of GDP within a few years."

Interest rates

Uncertainty over exactly what a Trump economy will look like, and the prospect of higher deficits, has already raised concerns in the bond market about the impact on the risk to the Treasury's credit rating.

On Wednesday, bond credit rating agency Fitch warned that the impact would be "negative" if his policies were "implemented in full." It also said that "deteriorating coherence and credibility in economic policymaking" pose a risk to bond investors.

The worry is that global investors could see U.S. Treasury bonds as riskier, driving up interest rates and raising the cost of borrowing.

That could also push mortgage rates higher, which would make it harder for homebuyers to borrow and create headwinds for the housing industry.

Trade

Trump made U.S. trade policy a major theme in his campaign, with threats to impose steep tariffs on Chinese goods, renegotiate or scrap the North American Free Trade Agreement with Mexico and Canada and scuttle the Obama administration's proposed Trans-Pacific Partnership deal.

In the short run, it's not clear how big an impact that would have on U.S. exports. A lot depends on how U.S. trading partners respond if the Trump administration carries out those threats.

Higher tariffs on imports, though, would raise prices for U.S. consumers and businesses, possibly fueling higher inflation, which could complicate matters for the U.S. Federal Reserve. The central bank is expected to nudge short-term interest rates higher, possibly as soon as its regular meeting next month.

Even if Trump softens his hard-line stance on trade, overall global shipments of imports and exports have already begun slowing worldwide.