Upcoming: The changing world order of the United States under the Trump administration

Original author: Ray Dalio

Original translation: Block unicorn

Now, Trump’s right-wing team has decisively won over Harris’s left-wing plan in the election, avoiding the nightmare scenario of a potential slight defeat for Trump and triggering election disputes. With the announcement of some key appointments, a possible scenario begins to emerge. I want to make it clear that the picture I paint is aimed at reflecting the situation as accurately as possible, rather than being biased towards good or bad, because accuracy is crucial for making the best decisions.

The current status I see includes:

1. A large-scale reform aimed at improving government efficiency, which will trigger internal political struggles to turn this vision into reality;

2. The ‘America First’ foreign policy, as well as external preparations for war with China, because China is considered the biggest threat to the United States. This policy has similarities to the practices of some countries in the 1930s.

Trump is selecting people to assist him in achieving these goals, including Elon Musk and Vivek Ramaswamy, who will be responsible for the newly proposed Department of Government Efficiency; Matt Gaetz, who, if approved by the Senate, will serve as Attorney General, pushing the legal boundaries of the new governance order; RFK Jr., who will thoroughly reform the healthcare system as the Secretary of Health and Human Services; Marco Rubio as Secretary of State, Tulsi Gabbard as Director of National Intelligence, Pete Hegseth as Secretary of Defense, leading the fight against foreign adversaries. In addition, there are many others - some inside the government, some as external advisors, such as Tucker Carlson, Steve Bannon, and some Trump family members - who will work with Trump to accomplish this mission. They are all loyal supporters of the leader and the mission, with the goal of overthrowing the so-called ‘deep state’ and replacing it with a new domestic order that they hope will bring the greatest economic strength and resistance to foreign enemies.

Once these people are in place, this method of appointment is likely to be used to purge individuals accused of being ‘deep state’ members, who are considered to be not aligned or loyal to this mission. This purge will extend to various parts of the government system, including those previously thought to be less subject to political/ideological control, such as the military, the Department of Justice, the Federal Bureau of Investigation, SEC, the Federal Reserve, the Food and Drug Administration, the Centers for Disease Control and Prevention, the Department of Homeland Security, the Department of the Interior, and ‘F-class’ government employees (a job classification that Trump hoped to reintroduce after being elected president, in order to remove civil service protections from certain government positions). Almost all appointment positions that the president (in cooperation with the Republican-controlled Senate, House of Representatives, and Department of Justice) can control will be controlled to ensure that individuals aligned with Trump and his new domestic order goals are in place. Throughout this process, almost everyone inside and outside the government will be seen as either an ally or an enemy, and all the power that Trump and his allies can use will be used to attack those who obstruct reform. I believe they can almost certainly have a major impact on the change in the American and global order, so what will these changes look like?

The Transformation of American Order

It is now clear that Trump and his team will treat the government and the country like an inefficient company to be acquired, reforming them through personnel changes, significant cost reductions, and the introduction of new technologies. This brings to mind the views expressed by Gordon Gekko in his ‘greed is good’ speech, but it should be noted that this approach is being taken by the US president towards the federal government and the entire country. As mentioned, the most recent and similar historical cases were extreme right-wing countries in the 1930s. It is important to note that I am not saying that Trump and his government are fascists, nor that they will act like fascist leaders in many ways. What I mean is that to understand the people who are currently in control and their nationalist, protectionist, top-down government-led economic and social policies, as well as their low tolerance for internal opposition and involvement in conflicts with major international powers, one can refer to the behavior patterns of countries that adopted similar policies in the 1930s.

The country’s economic reform is likely to be achieved through industrial policies aimed at increasing productivity and efficiency, but there will not be too much attention paid to issues that may hinder the implementation of these policies, such as environmental protection, addressing climate change, alleviating poverty, or promoting diversity, fairness, and inclusion. Some key areas (including what I consider to be the most important education and debt management areas) may be overlooked (the Democratic Party may also overlook these areas). During the continued collaboration between Trump and Musk, they will become the primary designers and implementers of the new American order.

Previously, these entities were restricted in many ways, but in the future they will be able to break free from government constraints more freely. These changes will bring great benefits to financial transaction matchmakers, banks, and asset managers, as capital controls will be relaxed and the Federal Reserve will face pressure to make monetary policy more accommodative, bringing them more freedom, funds, and credit. These policies are also beneficial to technology companies that support Trump, as they will be able to develop and operate to a large extent without constraints. In addition, these policies are also beneficial to lawyers as they will be busier. I have seen that these people are developing bigger plans to accomplish more under the Trump administration than they did under the Democratic government.

In addition, the regulatory efforts for artificial intelligence will weaken, and tariffs will be used to increase tax revenue and protect domestic producers at the same time. If the Federal Reserve continues to insist on cutting interest rates (although I don’t think it should), this will also transfer a large amount of funds stored in money market funds and other deposits to other markets, thereby stimulating the development of the market and the economy.

In addition, the United States is waging an economic and geopolitical war, and may engage in military conflicts with countries such as China, Russia, Iran, and North Korea, which will have a significant impact on domestic security and policy. For example, to ensure an adequate supply of key technologies in all areas, policies will be implemented requiring these technologies to be produced in the United States (for example, by 2030, 20% of the most advanced chips must be produced in the United States) or in allied countries. This requires the central government to take strong measures and adhere to sound energy and regulatory policies to ensure that these goals can be achieved.

Changes in the International Order

The international order will undergo a transformation between the following two forms:

a) The existing broken system created by the United States and its allies after World War II relies on globally recognized behavioral standards, rules, and governance institutions such as the United Nations, World Trade Organization (WTO), International Court of Justice, International Monetary Fund (IMF), World Bank, etc.

b) A more fragmented world order, the United States will pursue an “America First” policy, and clearly divide allies, enemies and non-aligned countries, because there will be more economic and geopolitical conflicts in the next 10 years, and a higher possibility of military warfare than before.

In other words, the era of U.S.-led multilateral cooperation is coming to an end. In this era, countries are trying to coordinate their relations through multilateral organizations and guiding principles and rules. In its place will be a more self-interest-based, law-of-the-jungle order, in which the United States and the dragon country will become the two main players, and the nature of the struggle remains a classic confrontation between “capitalism and communism” (in contemporary form).

Therefore, the dominant American moral and ethical concepts - that is, what is ‘morality’ and ‘ethics’ - will become less important, as the United States will no longer be the global leader in advocating and enforcing these principles. The choices of allies and enemies will be more based on strategic considerations, such as which transactions can be achieved. The vesting of various countries will become the most important issue.

Longguo will be regarded as the main enemy because it is both the most powerful and ideologically opposed to the United States; at the same time, Russia, North Korea, and Iran are also classified as enemies. In fact, China is widely regarded as the biggest threat to the United States, even surpassing other domestic threats. As for other countries, this article will not elaborate on their specific positions, but it can be said that currently all countries are classified as allies or enemies to some extent, which will also serve as a guiding principle in dealing with them.

Meanwhile, detailed response plans for major countries and areas are being developed. All countries will face tremendous pressure and be provided with opportunities to adjust their domestic order to align with the Trump-led US leadership system; otherwise, they will face negative consequences.

This conflict between the two major powers will also create opportunities for neutral non-aligned countries, especially in the business field.

The dynamic changes in this international order will also have significant impacts on developing countries (now referred to as the ‘Global South’) and the entire world.

85% of the world’s population in the Southern Hemisphere may choose to go their own way because the United States will no longer dominate a global common order based on specific ideals, and other countries may not be willing to follow the United States. The United States and the Dragon Country will compete for allies, and the Dragon Country is often considered to have a greater advantage in seeking non-aligned countries because China is more important economically and performs better in the use of soft power.

Given the changes in the international order, non-aligned countries will benefit if they meet the following conditions:

1. Good financial condition, that is, having a healthy income statement and balance sheet;

2. The internal order is orderly, and the Capital Market can promote the productivity of the people and the country;

3. Not involved in international wars.

More specifically, the following points can be further elaborated:

More government influence

To achieve government goals, the government’s influence will increase even at the cost of sacrificing the free market and profit-driven mechanisms. This will lead to debates between conservatives (who support top-down approaches) and those who support a more free market. Along this line of thinking, we should expect increased government intervention in the private market to advance its grand plans, including reshaping the economy and preparing for war. Therefore, cost efficiency and national security will become the primary goals for government collaboration with ‘national champion’ enterprises, rather than just pursuing profits, as these goals cannot be achieved solely through profit.

We need to follow policy changes that will determine which economic sectors benefit the most, such as supporting the energy and mining industries in the field of artificial intelligence technology. While there will be winners in the free market, in some obvious cases, the best American companies may not be sufficient to meet national needs (for example, in the advanced semiconductor field). Therefore, it is necessary to establish key partnerships with aligned foreign producers (such as Taiwan’s TSMC) to produce products in the United States and minimize dependence on foreign competitors as much as possible.

In addition to the need to produce key technologies domestically, there is also a need to produce steel, automobiles, and many other necessities. This means more ‘resumed production’ and ‘nearshore outsourcing’. At the same time, it is necessary to deal with the potential risks of disrupting the Supply Chain in various ways.

Massive Deregulation

To support cost-effective production, a large-scale relaxation of regulatory policies will be implemented.

Immigration and Expulsion Actions

Immigration policies will be strengthened, with a focus in the initial stage on border closures and the deportation of undocumented immigrants with criminal records.

Trade and Tariff Reform

Challenges of cooperating with US allies

In the geopolitical conflict with Longguo, Japan is the most important ally of the United States, so the current political dynamics in Japan are crucial. Other allies such as the United Kingdom and Australia are important, but not major powers. Europe is weak and busy with its own problems, and has no direct interest in this conflict; at the same time, facing the threat of Russia, Europe cannot do without the support provided by the United States through NATO. Most other countries are unwilling to get involved in this conflict because the goals pursued by the United States are not as important to them as they are to the United States, and they are more economically dependent on China than the United States. The non-aligned emerging powers in the global South (including members of the BRICS countries such as China and Russia) are a group of countries worth following.

High economic cost as the world hegemon

The ability to possess the most important technology, strong military power, and soft power will require economic costs that exceed the scope provided by the profit-making model alone. Therefore, further exploration will be needed on how to solve this economic reality.

The necessity of drop taxes

To maintain voter satisfaction and keep funds in the hands of the most productive individuals, it is necessary to drop taxes. Trump and his advisers believe that lowering the corporate tax rate below its current level (about 20%) will increase overall tax revenue and enhance productivity. This perspective is positive for the market.

Major reform of the healthcare system

It is expected to make major adjustments to the current healthcare system to improve efficiency and drop costs.

Priorities and Schedule

In the face of this series of daunting tasks, the new government has only limited time to complete them, especially in the first 100 days and the following two years. Therefore, it is necessary to make strict selections of priorities. It is currently unclear which goals will be given priority, and it is also unclear how much success the new government will achieve when its ambitious goals encounter deep-rooted system resistance.

Undoubtedly, this will be a challenging and crucial period, let’s keep follow and wait and see.