Original article by Ray Dalio
Original translation: Block unicorn
Now, Trumps right-wing team has won a decisive victory over Harris left-wing program in the general election, avoiding the nightmare scenario of a narrow defeat and a controversial election. As some key appointments are announced, a possible scenario is beginning to emerge. I want to be clear that the picture I paint is intended to be as accurate as possible, without bias for good or bad, because accuracy is essential to making the best decision.
The current status that I see includes:
1) A massive transformation aimed at making government more efficient, which would trigger an internal political struggle to turn this vision into reality;
2) An “America First” foreign policy and external preparations for war with China, which is considered the biggest threat to the U.S. This policy is similar to what some countries did in the 1930s.
Trump is selecting people to help him achieve these goals, including Elon Musk and Vivek Ramaswamy, who will run the newly proposed Department of Government Efficiency; Matt Gaetz, who, if confirmed by the Senate, will serve as attorney general to push the legal boundaries of the new order of governance; RFK Jr., who will overhaul the health care system as secretary of health and human services; and Marco Rubio as secretary of state, Tulsi Gabbard as director of national intelligence, and Pete Hegseth as secretary of defense, who will lead the fight against foreign adversaries. In addition, many others—some inside the administration, some as outside advisers, such as Tucker Carlson, Steve Bannon, and some Trump family members—will join Trump in this mission. They are all victory first advocates loyal to their leader and mission, which is to overthrow the so-called deep state and replace it with a new domestic order that they hope will bring maximum economic power and resistance to foreign enemies.
Once these people are in place, this type of appointment will likely be used to purge people who are accused of being members of the deep state and who are not considered to be aligned with or loyal to this mission. This purge will extend to all parts of the government system, including those that were previously considered less subject to political/ideological control, such as the military, the Department of Justice, the FBI, the 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 category F government employees (a job classification that Trump hopes to reintroduce after his election as president to remove civil service protections from certain government positions). Almost all appointments 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 people who are aligned with Trump and his goals for the new domestic order are in place. In this process, almost everyone in and outside the government will be considered an ally or an enemy, and all the power available to Trump and his allies will be used to crack down on enemies who stand in the way of reform. I think they will almost certainly have a significant impact on the changes in the American and world order, so what will these changes look like?
The Changing American Order
It is now clear that Trump and his team will reform the government and the country like a corporate acquirer would an inefficient company. They will make huge changes by replacing personnel, drastically cutting costs, and introducing new technologies. One can think of the ideas conveyed by Gordon Gekko in his Greed is Good speech, but one needs to realize that this approach is taken by the President of the United States to the federal government and the country as a whole. As mentioned, the most recent historical parallel is the far right countries in the 1930s. To be clear, I am not saying that Trump and his administration are fascists, nor that they will act like fascist leaders in many ways; what I am saying is that in order to understand those who are now in charge and their nationalist, protectionist, top-down government-led economic and social policies, as well as their low tolerance for internal opposition and involvement in international great power conflicts, one can refer to the behavior of countries that adopted similar policies in the 1930s.
The country’s economic reforms will likely be achieved through industrial policies that are designed to increase productivity and efficiency, but not much attention will be paid to issues that might hinder the implementation of those policies, such as environmental protection, combating climate change, alleviating poverty, or promoting diversity, equity, and inclusion. Some key areas (including, I think, education and debt management, which are the most important) will likely be neglected (and the Democrats will likely ignore them, too). While the Trump-Musk partnership lasts, they will be the primary architects and enforcers of the new American order.
Previously, these entities were restricted in many ways from trading, but in the future they will be freer to do things without the constraints of the government. These changes will be very beneficial to financial dealmakers, banks, and asset managers, as capital controls will be relaxed and the Federal Reserve will be under pressure to make monetary policy easier, giving them more freedom, money, and credit. These policies are also good for Trump-supporting technology companies, as they will be able to grow and operate largely unconstrained. In addition, these policies are also good for lawyers, as they will be busier. I can already see that these people are making bigger plans to accomplish more under the Trump administration than they did under the Democratic administration.
In addition, AI regulation will be reduced, and tariffs will be used to simultaneously raise tax revenue and protect domestic producers. If the Fed continues to cut interest rates (although I think it should not do so), this will also move a lot of money stored in money market funds and other deposits to other markets, thereby stimulating the development of markets and the economy.
In addition, the reality that the United States is engaged in an economic and geopolitical war and may face military conflict with China as well as Russia, Iran, and North Korea will have major implications for domestic security and policy. For example, to ensure that the United States has adequate supplies in all key technology areas, policies will be introduced requiring that these technologies must 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 will require strong measures from the central government and the persistence of good energy and regulatory policies to ensure that these goals can be achieved.
Changes in the international order
The international order will shift between the following two forms:
a) The existing broken system created by the United States and its allies after World War II, which relies on globally accepted standards of behavior, rules, and governance institutions such as the United Nations, the World Trade Organization (WTO), the International Court of Justice, the International Monetary Fund (IMF), and the World Bank;
b) A more fragmented world order, with the United States pursuing an “America First” policy and a clear distinction between allies, enemies, and non-aligned countries, as the next decade will see more economic and geopolitical conflicts and a higher likelihood of military war than ever before.
In other words, the era of multilateral cooperation led by the United States is coming to an end, in which countries try to coordinate their relations through multilateral organizations and guiding principles and rules. In its place will be a more self-interest-based, jungle order, in which the United States and China will become the two main players, and the essence of the struggle is still the classic capitalism vs. communism confrontation (in the form of a contemporary version).
As a result, American-led notions of morality and ethics—what is “moral” and “ethical”—will become less important because the United States will no longer be the global leader in advocating and enforcing these principles. The selection of allies and enemies will be based more on strategic considerations, such as what deals can be made. Which camp countries belong to will become the most important issue.
The Dragon Kingdom will be considered the main enemy, as it is both the most powerful and the most ideologically opposed to the United States; Russia, North Korea, and Iran are also classified as enemies. In fact, China is widely considered to be the biggest threat to the United States, even more than other domestic threats. As for other countries, this article will not elaborate on their specific positions, but it can be said that all countries are currently classified as allies or enemies to some extent, which will also become a guiding principle for dealing with them.
At the same time, detailed response plans are being drawn up for major countries and major sectors. All countries will face enormous pressure and be provided with opportunities to adjust their domestic order to align with the US leadership system led by Trump; otherwise, they will face negative consequences.
This conflict between the two great powers will also create opportunities for neutral, non-aligned countries, especially in the commercial field.
This shift in the dynamics of the international order will also have significant implications for developing countries (now known as the “Global South”) and the world as a whole.
The Global South, which accounts for about 85% of the worlds population, may choose to go its own way because the United States will no longer dominate a common global order based on specific ideals, and other countries may not be willing to follow the United States. The United States and China will compete for allies, and China is generally considered to have a greater advantage in winning over non-aligned countries because China is more important economically and better at using soft power.
In light of this change in the international order, non-aligned countries will benefit if they meet the following conditions:
1. Good financial status, i.e. having a healthy income statement and balance sheet;
2. The internal order is in good order and the capital market is able to 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
The influence of the government will increase to achieve its goals, even at the expense of free markets and profit-seeking mechanisms. This will spark debate between conservatives (who support a top-down orientation) and those who support a more free market. Along these lines, we should expect an increase in 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 main goals of the governments cooperation with national champions rather than simply pursuing profits, as these goals cannot be achieved by profits alone.
We need to watch for policy changes that will determine which sectors of the economy benefit the most, such as the energy and mining industries that support AI technology. While there will be winners in a free market, there are clear cases where the best American companies may not be enough to meet national needs (such as in advanced semiconductors). Therefore, key partnerships with aligned foreign producers (such as Taiwans TSMC) will need to be established to manufacture products in the United States to minimize dependence on foreign adversaries.
In addition to the need to produce key technologies domestically, steel, cars and many other necessities also need to be produced. This means more re-shoring and friendly outsourcing. At the same time, there is a need to deal with the potential risk of disruption that could cut off the supply chain in a variety of ways.
Massive deregulation
To support cost-effective production, a large-scale deregulatory policy will be pursued.
Immigration and Deportation Action
Immigration policy will be strengthened, with an initial focus on closing the border and deporting undocumented immigrants with criminal records.
Trade and tariff reform
The Challenges of Working with U.S. Allies
Japan is the most important ally of the United States in the geopolitical conflict with the Dragon Kingdom, so the current political dynamics in Japan are crucial. Other allies, such as the United Kingdom and Australia, are important but not great powers. Europe is weak, preoccupied with its own problems, and has no direct interest in the conflict; at the same time, it cannot do without the support of the United States through NATO in the face of the Russian threat. Most other countries do not want to be drawn into the conflict because the goals they are fighting for are not as important to them as they are to the United States, and they are more economically dependent on China than on the United States. The emerging powers of the non-aligned Global South (the BRICS members, which include China and Russia) are a group of countries worth paying attention to.
The high economic cost of being a world hegemon
The economic costs of having the most important technologies, a strong military, and the ability to have soft power will exceed what a profit model alone can provide. Therefore, how to address this economic reality will require further exploration.
The need to reduce taxes
To keep voters happy while keeping money in the hands of the most productive people, taxes need to be lowered. Trump and his advisers believe that a corporate tax rate below current levels (around 20%) will increase total tax revenue and boost productivity. This view is positive for the market.
Major reforms to the healthcare system
Major adjustments to the current healthcare system are expected to be made to improve efficiency and reduce costs.
Priorities and timelines
Faced with this daunting array of tasks, the new government has a limited time to accomplish them, especially in the first 100 days and the first two years thereafter. Therefore, priorities must be carefully selected. It is unclear which goals will be prioritized, or how successful the new government will be when its ambitions run into entrenched systemic resistance.
This will undoubtedly be a challenging and important period, so let’s stay tuned and see what happens.
