As President-elect Trump gets ready to begin his second term, law firms need to get themselves ready for a dynamic legal landscape shaped by deregulation, possible renewed inflation, and potential geopolitical challenges
As the dust settles on the 2024 presidential election, law firms find themselves navigating the potential complexities of a second term under President Donald J. Trump. With his re-election, the implications for various sectors, including the legal landscape, are simultaneously profound and mercurial.
During his first term, President Trump’s administration was marked by significant policy shifts, deregulation, and a distinctive approach to international relations and domestic governance. Yet, as he embarks on his second term, questions swirl as to what policy proposals will remain rhetoric and which will come to fruition.
Planning for the future requires an assumption that Trump will be able to achieve several of his policy objectives in the first year or two of his presidency. Yet, governance and events on a geopolitical framework take time, and it may be wise for companies also to take a longer-term view of three or more years.
The impact on firm business
President Trump’s second term is expected to pivot heavily towards deregulation, impacting various sectors from energy to finance. His administration plans to roll back green regulations that currently limit oil & gas drilling and coal mining, potentially boosting traditional energy sectors while curtailing government investment in renewable energy. Additionally, Trump has expressed his intent to rescind unspent funds from the Inflation Reduction Act, a significant climate law, which could hinder growth in industries involved in electric vehicles, solar power, and wind energy.
Further, Trump’s aim to install Paul Atkins, a noted cryptocurrency proponent, as chair of the U.S. Securities and Exchange Commission could indicate a change in regulation of that industry. (Indeed, Trump’s announcement of Atkins lifted Bitcoin to $100,000 for the first time in its history.) However, the change at the top of the regulatory agency also may undermine the influence of sustainable funds, further weakening the momentum behind environmental, social & governance (ESG) investing.
Legal demand
Shifts in regulation would likely drive law firm demand. Given the highly political nature of some of these aims and the precedent of the first Trump administration, legal challenges to these changing regulations are likely. Furthermore, recent Supreme Court decisions curbing the power of regulatory agencies set the stage for an additional surge in litigation demand.
Corporate demand, on the other hand, is likely to push an even larger boost in demand for legal work. Corporate profit performance correlates with demand for legal services, likely as a result of the increased investment, spending, and dealmaking that companies which are flush with cash tend to make. If the Trump promise to significantly lower corporate tax rates further comes to fruition, companies would be expected to see a substantial boost in profits.
As Trump embarks on his second term, questions swirl as to what policy proposals will remain rhetoric and which will come to fruition.
However, overseas operations are likely to face significant challenges. The European Union, and especially member countries like Germany, could experience economic downturns as a result of potential trade initiatives the Trump administration has favored. This could pose substantial threats to the transactional demand for top law firms’ international offices.
While trade wars generally have adverse effects on business, regardless of the outcome for governments involved, law firms on the other hand may see a temporary increase in demand in 2025. This could be due to companies’ reactions to new trade policies — such as relocating operations, selling assets, or engaging in litigation. In the long term, however, such conflicts have traditionally dampened growth rather than promoted it.
Tariffs & expenses
The kind of tariffs that have been talked about by Donald Trump on the campaign trail would represent a significant shift in US economic policy, with potentially far-reaching implications. While the intention behind tariffs is to bolster domestic manufacturing, the reality is that American manufacturing currently lacks the capacity to substitute for its needed imports at a comparable cost or scale. If US corporations could do such, there would be no need for tariffs.
This apparent strategic mismatch creates a scenario in which businesses that are reliant on imported goods are forced to either absorb the increased costs or more likely pass those costs on to consumers.
With US consumers currently hyper-vigilant about even a hint of price inflation, even a modest increase in prices has the potential to ripple through the economy, exacerbating inflation in sectors that are particularly sensitive to cost changes, such as food, energy, and consumer goods. As a result, law firms could be looking at another significant expansion of their expense profiles over the coming years.
Billing rates & inflation
Yet, for law firms, inflation does have some advantages. Because of the post-pandemic inflation surge, many firms have actively incorporated inflation into their rate-setting procedures, meaning their prices will automatically rise in accordance. And recent history has shown that clients have offered relatively little pushback to such inflation-led rate increases. If this continues, it is likely to provide a solid cushion for firms in a renewed inflationary environment, especially if their own expenses are increasing.
The impact of global events on law firms
While short-term factors are crucial for understanding law firms’ near-term landscape, it is equally important to consider prospects a few years into the future and beyond. While the current fluctuating landscape paints a picture of a market that is reactive and adaptable in the short term, the broader horizon reveals deeper challenges and uncertainties that could shape the legal industry for years.
Historically, large law firms have managed both prosperous and challenging times, often identifying opportunities during periods of increased risk. In such situations, law firms frequently rely on counter-cyclical practices, including bankruptcy, litigation, and labor & employment, which tend to perform well during economic downturns.
Historically, large law firms have managed both prosperous and challenging times, often identifying opportunities during periods of increased risk.
However, extreme global instability can pose long-term threats to transactional demand, as we saw last during the aftermath of the global financial crisis (GFC), which saw law firms’ transactional practices struggle to rebuild for the better part of a decade afterwards. To illustrate, if a law firm worked 100 hours in 2007, they typically only reached that same level of 100 hours worked annually by 2019. Yet, at that time, counter-cyclical demand did not ride to firms rescue, as rather than surging to counter the decline of transactional demand, counter-cyclical demand merely held on to its pre-GFC levels, slowly declining over the following decade instead. Overall legal demand for firms only recovered in 2023, more than 15 years later.
Thus, law firms cannot assume that legal demand will be a perennial driver of profits should the geopolitical environment settle into a pattern of instability. While the Trump administration has repeatedly stated a desire to end America’s overseas armed conflicts, there are still ongoing conflicts with which to contend. Given that, there is a risk that significant conflict or protracted trade wars could negatively affect law firm profits for an indefinite period.
Overall, the shaking up of the domestic and international snow globe by the Trump administration is likely to increase legal demand in the short term as clients adjust to ongoing changes, the long-term implications are decidedly more uncertain.
You can find out more about the challenges law firms are currently facing here.
