— Ray Dalio (@RayDalio) November 25, 2024
The picture that I see is one of 1) a giant renovation of government and the domestic order aimed at making it run more efficiently, which will include an internal political war to convert that vision into reality, and 2) an “America first” foreign policy and preparation for external war with China, which is perceived to be America’s greatest threat. The most recent analogous period is the 1930s, when such an approach emerged in several countries.
The Changing Domestic Order
It is now clear that Donald Trump and those he is choosing will reform government and the country like a corporate raider engaging in a hostile takeover of an inefficient company, making huge reforms to it by changing the people, slashing costs, and infusing it with new technologies.
As mentioned, the most recent analogous historical cases were the hard-rightist states in the 1930s. To be clear, I am not saying that Trump and those in his government are fascist or will behave as fascist leaders did in many respects; what I am saying is that, in order to understand those who are now taking control with nationalistic, protectionist, top-down, government-led economic and social policies, and who have little tolerance for internal opposition and are embroiled in international great powers conflicts, it is worth understanding how those states with analogous policies in the 1930s behaved.
The economic renovation of the country will, in all likelihood, come via industrial policies that are designed to improve productivity and efficiency without much worry given to the people or issues— such as taking care of the environment, addressing climate change, remediating poverty, or encouraging diversity, equity, and inclusion—that could stand in the way of these things happening. Certain key areas (including the areas that I think are most important, which are education and debt management) will likely be neglected (and would have also been neglected by the Democrats). For as long as the Trump-Musk partnership lasts, they will be the main designers and implementers of this new domestic order.
These policies may well be great for Wall Street and some tech and most businesses that are plagued by regulations and worried about increased taxes. While these entities have been previously restrained in many ways from doing deals, they will be much freer from government constraints. These changes will be great for financial deal makers, banks, and asset managers because they will have more freedom and more money and credit, because capital controls will be eased and the Fed will be pressured to make money easier.
Also, the realization that the United States is in an economic war and a geopolitical war, and could find itself in a military war, with China as well as with others like Russia, Iran, and North Korea, will have big effects on domestic security and domestic policies. For example, ensuring that the U.S. will have acceptable amounts of all key technologies will lead to policies for these technologies to be made in the U.S. (e.g., 20% of the most advanced chips will have to be produced in the U.S. by 2030) or made in allied countries, which will require the central government to have strong and insist on well-implemented energy and regulatory policies that enable these changes to be made.
The Changing International World Order
The international world order will change from a) the existing tattered remains of the post-World War II system that was created by the U.S. and its allies, in which there are/were generally agreed-upon global standards of behavior, rules, and governing organizations like the UN, WTO, International Court of Justice, IMF, World Bank, etc. to b) a more fragmented world order, in which the United States will pursue an “America First” policy with clear categorizations of allies, enemies, and nonaligned countries, as there will be greater amounts of economic and geopolitical war and a greater-than-ever chance of military war in the next 10 years. In other words, we are now coming to the end of an era led by the United States, in which countries tried to work out together how to be with each other through multinational organizations with guiding principles and rules, and into a more self-interested, law-of-the-jungle-type order with the United States being one of the two biggest players and China the other— and the fight being largely the classic one of capitalism versus communism (in their contemporary versions).
This change in this world-order dynamic will also have big implications for the developing world (or the “Global South” as it’s now called), and therefore the whole world, because it contains roughly 85% of the world’s population and will likely go its own way, because the U.S. will no longer lead a common world order based on certain ideals and other countries won’t necessarily want to follow the U.S. The U.S. and China will be competing for allies, with China generally believed to be in a much better position to win over nonaligned countries because China is more important economically and does a better job exerting its soft power. Given these changes in the world order, nonaligned countries that 1) are financially strong—i.e., have good income statements and balance sheets, 2) have internal order and capital markets that facilitate people and the country to be productive, and 3) are not in an international war will benefit.
…Challenges in assembling and working with U.S. allies. Japan is our most important ally in the geopolitical conflict with China, so what is now happening there politically is important. Other allies are the U.K. and Australia, but they are not great powers. Europe is weak, has its hands full with its own problems, and doesn’t have a dog in this fight, while it has Russia on its doorstep and can’t fight it without the U.S.’s NATO support. Most other countries don’t want to get into the fight, as what is being fought for by the United States isn’t as important to them as it is to the United States, and they have more economic dependencies on China than on the U.S. The nonaligned Global South rising powers—which, along with China and Russia, are members of BRICS—are countries to pay attention to.
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