Policy announcements since the inauguration reinforce our view that Trump is first and foremost a pragmatist (if you like him) or opportunist (if you don't like him). “Pain thresholds” in equities (>5% drawdowns) and Treasury yields (5% on the 10-year) will be KPIs to monitor for trading opportunities as more policies are floated, reversed, and enacted in the first 100 days.
With that in mind, here are three key takeaways from Trump’s first day in office in the context of our original Trump 2.0: Going Full Reagan report.
- No Day 1 tariffs on China suggest Trump wants to make a deal… eventually
- Early policy priorities are NOT an obvious headwind to profits or markets
- The big picture: Peter Turchin's “Elite Overproduction” as the lens
No Day 1 tariffs on China suggest Trump wants to make a deal… eventually
China remains in the cross-hairs of the administration but the TikTok reprieve and no day 1 tariffs shows that Trump's desire for a deal with China is underestimated. (See our 10 Surprises for 2025.)
The lack of universal or China-specific tariffs adds to evidence that the second Trump administration’s goal is to encourage investment in the US. We noted this in our analogy to Reagan’s first term, when “Voluntary Export Restraints” were used to encourage Japanese automakers to build factories in the US.
Even if tariffs are eventually proposed and implemented, a few other observations over the past few days suggest Trump ultimately wants to make a deal with China:
- Howard Lutnick (Trump’s nominee for commerce secretary) explained the administration views tariffs as a tax for access to the US market which foreign companies can avoid by “building their factories in America”.
- Trump pledged to delay the enforcement of the “divest or ban” law that shut down TikTok (a subsidiary of China’s ByteDance).
- Elon Musk remains closely enmeshed in the new administration and also has substantial interests in maintaining good ties with China given Tesla’s large production presence there (and its importance to Tesla’s profitability).
Early policy priorities are NOT an obvious headwind to profits or markets
Much of Trump’s inauguration speech and initial executive orders focused on addressing “culture wars”, deregulation (e.g., lifting moratorium on new LNG exports), and immigration (e.g., restrictions on asylum seekers). “Inflation” was also a major topic, which is probably why tariffs and tax cuts (both of which have the potential to spook markets) seem to be a lower priority for now.
But one key factor is that the Republican’s House majority is only 220 (217 if you exclude vacancies) to 215 for the next two years, in contrast to the 241 to 194 majority which enabled the Tax Cut and Jobs Act in Trump’s first year. This could shift the balance in favor of Trump pursuing tariff policies (most of which can be done by executive order) ahead of tax cuts (which need to pass through Congress). We’ve already seen some hints of tariffs on Canada and Mexico, so the first year of Trump’s second term could look more like 2018 (when the trade war started) than 2017.
The big picture: Peter Turchin's “Elite Overproduction” as the lens
The front-row visibility of a different set of tech elites (i.e., not Bill Gates or Sergei Brin) and the MAGA rally afterwards are consistent with Peter Turchin's “elite overproduction” framework.
Elite overproduction is when the number of individuals aspiring to elite positions (political, economic or social leadership roles) exceeds the number of available positions. This mismatch creates intense competition within the elite class, leading to factionalism and reduced cooperation among elites.
The end result is
- Inequality: A growing disparity between the wealthiest elites and the rest of society fuels resentment and destabilizes social harmony.
- Political Fragmentation: As factions within the elite fight for limited resources and power, the political landscape becomes polarized, weakening institutions.
- Rise of "Counter Elites": The excluded or marginalized elites align with dissatisfied lower classes, amplifying societal unrest.
One likely tangible effect of this will be the change in favored companies. For example, companies like Anduril Industries and SpaceX will continue to win defense contracts and expand production relative to well-established companies like Boeing.
With promises to reveal and declassify information about topics like Covid-19 and the JFK assassination, it is too early to tell if the “counter elites” victory will remain mostly peaceful and non-disruptive to politics or society. (See Peter Thiel’s FT op-ed for more.) But in any case, we continue to find this to be a helpful lens through which to view the broader political shifts underway.