Trump 2.0
Thu Apr 03 2025
Dear readers,
In 2020, during Donald Trump’s first term, we wrote about his protectionist trade policy accelerating the development of AI, automation, Robotics, and that the technology sector will emerge as a big winner. Political moves are powerful catalyst in providing the impetus for businesses to develop strategy to navigate major changes. The new tariffs announced this morning is another such catalyst that will drive a new world order that is already under way since the world re-emerged from COVID-19.
America’s consumer-led economic growth has served them well, and the dominance of the USD as a reserve currency have been the core pillar for its economic policy. The main difference between now and then: CHINA. China’s emergence as an economic and technological powerhouse are the key driver of the economic policy changes.
While the world is shocked by the announcement, we see this as an inevitable change. The USA is well-aware that it cannot sustain its existing growth model and must make changes. USD dominance as a currency for trade and US treasuries credit rating are not going away in short period of time, but financial market is all about pricing in expectations. If the world believes that US deficit is not sustainable, that USD as a single dominant currency for trades is diminishing, and Treasuries is not the safe haven it was, then the potential loss of confidence will spiral out of control when the critical juncture is crossed. When is that juncture? Nobody knows exactly but everyone knows it is getting closer. DOGE, trade tariffs, onshoring of manufacturing are policies enacted to slow these down and to sustain the confidence in US economy, in USD and in America. The fact that investors are choosing a non-interest-bearing investments instead of US treasury is a very telling sign.
What is also inevitable is that China as the lowest cost producer of high technology goods and services will drive a new trade order away from the US. The emergence of this new trade world order dovetails with the vacuum left by US in many developing and emerging economies. For the last few decades, US provided the stability for many countries. That vacuum will be filled by China, not by providing security, but opportunities in commerce. It is not difficult to see a new world trade flow that is increasingly intertwined with the China producers globally.
This is not a bad or good analysis, but what is not sustainable will have to find another way. The ideal goldilocks situation is for the US economy to go through a slower growth and sustainable but manageable higher consumer prices. China and the rest of the world will reengineer a trade flow to co-exist with the existing. The bear case is a stagflation in the US and the world economy. Something in between is a good bet. At the end of the day, economic growth will be led by the private sector that is most suited for the prevailing economic situation. We believe the current discomfort will go away soon and the companies that are key drivers of this economic order will continue to do well.
Chairman