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November’s election will produce significant and potentially highly divergent outcomes for US foreign and trade policies, the trajectory of current (and future) conflicts around the world, and the speed and scope of a fracturing global order. In this note, I outline a mix of significant policy shifts and differing worldviews between presidents Trump and Biden, in the context of accelerating structural changes in the geopolitical backdrop that are larger than any one person or party, and that will produce meaningful constraints on either leader. I will also offer considerations for portfolio positioning in either scenario. (Please also see Biden 2.0: National security and investment themes.)
These notes are informed by my ongoing conversations and meetings with members of both Trump’s and Biden’s inner circles, as well as national security policymakers on both sides of the aisle, and including military, intelligence, and other officials around the world. That said, the campaign objectives we’re hearing today remain dependent on domestic political developments and external events over the coming months and are likely to be fluid. Moreover, what’s being said on the campaign trail and in policy circles should not be taken as a “done deal”; there’s a huge delta between what Trump’s China trade hawks (and his own inclinations) say they want, and what they’ll implement given legal, political, institutional, and other constraints.
As we move closer to November, we should also be open to a variety of surprises, plot twists, and narrative shifts. This will be an election with two candidates of advanced age, each with known and unknown health issues. It is also occurring amid the complexities and unpredictable nature of a deeply polarized US electorate, which creates a higher probability of domestic political violence.
Moreover, this election will take place in a highly competitive, increasingly violent, and rapidly shifting geopolitical backdrop where US adversaries (not to mention domestic political and campaign operatives) have a new set of tools and emerging technologies to influence events and voters, including AI-related and other cyber applications, as well as deep fake photos and videos, voice manipulation technologies, and so on. The old cliché that “this time is different” may, for once, be true.
Trump’s first presidency offers few concrete clues about what a second administration would likely accomplish on the global stage. That’s because today’s geopolitical backdrop is vastly different, more complex, and more dangerous, and includes not only lingering COVID-19 economic and policy fallouts globally, but major wars in Europe, the Middle East, and potentially the Indo-Pacific. Each have implications for US foreign policy, global security, trade, climate, and other geopolitical factors.
For all the perceived noise, political upheaval, and policy dysfunction we navigated over those four years, the geopolitical environment that Trump’s administration faced was relatively tame — no major wars, no real threats of nuclear war or other significant military escalations involving great powers, no major terror attacks against the US or its allies comparable to the events of October 7, no persistent and state-sponsored attacks on global shipping and US military personnel, and no real challenges to US-led global security institutions including NATO, the QUAD, and others. COVID, of course, offered his administration a host of unique health, economic, and policy challenges but did not threaten national security interests. A Trump 2.0 administration, therefore, would be confronted with a significantly different world — and one where US interests, resources, and attention are already deeply stretched and increasingly challenged by the actions of China, Russia, Iran, North Korea, and other members of the so-called “axis of autocracies,” to say nothing of historically high political dysfunction in Washington.
Much of this new policy direction, too, will be dependent upon the skill of individuals who accept national security positions in a second Trump administration, and what these officials are able to accomplish at deeply entrenched institutions like the Pentagon, CIA, State Department, NSA and others. Suffice it to say, significant changes to US foreign policy will meet stiff internal resistance.
There is one area where Trump 1.0 priorities are likely to be instructive in positioning portfolios for his second administration. I believe Trump would focus first on trade, which has important foreign policy and geopolitical implications, and where a president would have wider latitude for action in a likely divided US Congress.
These trade impacts include increasing bilateral and geostrategic tensions with China as Trump — using the blunt tool of Sec. 301 (as was employed during his first administration) — vastly expands US tariffs both in size and scope aimed at Beijing, while targeting additional “strategic sectors” critical to great power competition with additional import and export controls. These plans may include Chinese IP theft and “state subsidies use” in a variety of sectors ranging from electric vehicles (EVs), to critical minerals, advanced electronics, semiconductors, pharmaceuticals, and other industries that have a “national security orientation”. If enacted, these expanded Trump actions will likely provoke similar retaliatory trade reactions from Beijing, so the negative direction of US-China relations is set to accelerate.
Trump may also levy more “targeted” trade restrictions “against everyone,” including key US allies in Europe and in the Indo-Pacific, particularly in industries that he deems important, either for domestic political or national security reasons. According to Trump confidants, this would likely include autos, solar panels, fiber-optic cables, and semiconductors. If this indeed comes to pass, from a national security perspective it would likely further strain US-Transatlantic relations, raise new questions about US military and diplomatic and security commitments among allies in Europe and Asia, and accelerate a fracturing global order. It would also introduce new incentives around the world to break from US security guarantees through rapid military build-ups, including (potentially) an increase in nuclear weapons capabilities.
US trade policy — and what it means for US foreign policy — would become more “transactional,” and less “strategic”. All of this would be welcomed and encouraged by senior leadership in China and Russia, both of whom view US military and economic ties with allies across Europe, the Indo-Pacific and elsewhere, as critical sources of US geostrategic strength. Beijing and Moscow, therefore, have strong national security incentives to promote these trade and related foreign policy developments in a second Trump administration, overtly and covertly.
From a macro perspective, Trump’s trade agenda is likely to be inflationary, disruptive on an industry-by-industry level, and in time lead to lower global growth than the heyday of globalization. We should also see shorter and more differentiated economic cycles, given a likely wider dispersion of country/regional exposures to these policies, as well as structurally higher rates than in previous “Goldilocks” eras. These interlocking policy disruptions should continue to favor active management — including long-short and other hedging strategies — as a way to potentially gain exposure to winners and lessen exposure to losers at regional, country, industry, company, and asset-class levels.
A Trump 2.0 (as well as Biden 2.0 for that matter) also presents an ideal opportunity to lean into investment themes that could benefit from a greater global focus on security. These come under the umbrella of great power competition policy and include legacy defense, defense innovation, climate adaptation/resiliency, and critical minerals and other key decarbonization inputs.
Defense innovation is a perennial theme given the growing importance of a new array of rapidly emerging dual-use civilian/military technologies at the heart of shifting military doctrines globally, and where the Pentagon, PLA, NATO countries, Australia, South Korea, Japan, India, and other militaries globally are increasingly focusing their attention. These include space-based and related aerospace technologies (national security professionals view space as the “ultimate high ground” so space is therefore the next logical battleground), next-gen communications/electronic warfare, robotics and automation (especially given the learning curve we’ve seen with drones in the Ukraine war), biotech (including synthetic biology), EVs and other renewable technologies deployed across militaries, and, of course AI. Down the road there will also likely be massive national security implications from quantum computing.
If we end up with a more “transactional” US foreign policy under a second Trump administration, this adds a much-higher degree of uncertainty to existing conflicts around the world and a broader set of potential outcomes for us to navigate. Let’s look at what a more fractured, less-allied centric, and more transactional US foreign policy implies for the three biggest geopolitical challenges of the moment.
Ukraine/Russia
We can expect less (but not zero) support for Kiev from Trump’s Washington. There will be greater pressure on President Zelensky to negotiate a ceasefire in 2025. We can also anticipate a more robust European military response, but not enough to fill the gap left by the US.
The result is a fractured, smaller, but still sovereign Ukraine, more oriented toward Europe, with likely EU entry and some level of security guarantees (although likely not full NATO membership). Look for the continuing isolation of Russia from the West, continuing economic weakness for Russia, and increasing dependence on Beijing for economic, military, and strategic objectives.
Middle East
Trump’s off-the-cuff responses to October 7 and the Gaza War have been inconsistent. He has both praised Hamas for “being smart” about the attacks, while maintaining support for the Israeli government, so we should have low conviction about how all of this plays out.
As evidenced by Trump 1.0 actions in the Middle East and, in particular, the US drone strike that killed IRGC chief Qasem Soleimani, I have higher conviction that the US under Trump 2.0 will take a much harder line on Iran. This more assertive response would be critical to the outcome of this war and has implications for the entire region, as Iran’s fingerprints can be found on Hamas, Hezbollah, Shiite-backed militias in Iraq and Syria, and the Houthis in Yemen. A higher degree of US deterrence aimed at Tehran could lead to greater regional stability, avoiding worst-case outcomes. On the other hand, it could also spark a wider regional war with Iran — a low, but still significant probability. Key to this will be improving US relations with Saudi Arabia, and perhaps, other Gulf States.
The Gaza War has revealed and inflamed the deep structural challenges existent in the region. They are unlikely to be solved satisfactorily in either a Trump or Biden 2.0. As a result, I expect elevated geopolitical risk throughout the region, including the ongoing humanitarian disaster and conflict between Israel and the Palestinians. There would be a higher probability of a direct US-Iran military confrontation, including Iran’s ongoing nuclear weapons program and deepening strategic ties with Moscow. This will accelerate the US-China-Russia great-power divisions across the region.
Taiwan
Given the high stakes, this complex and enduring geopolitical issue remains the biggest concern of my national security contacts, in either a Biden or Trump presidency. Again, a more “transactional” approach under Trump 2.0 opens the possibility for an improvement in US-China relations, or at the lower end of the probability scale, a “grand bargain” between the US and China on this issue. We should prepare for additional uncertainty and a wider set of potential outcomes, including (most likely) much higher tensions with Beijing as a result of Trump trade policies, more US-China animosity among domestic populations, a lessening of recent US-China communication and other “détente” efforts, all of which increases the probability of escalation in the event of US-China military accidents. This is a real concern among my contacts, given the increased level of military activity in the region. More broadly, a Trump 2.0 would likely strain US relationships with key allies in the Indo-Pacific; my South Korean and Japanese contacts are concerned about a reduced security role for the US in the region.
The result is we may see increased US-China bilateral tensions for the foreseeable future. China will continue to build its military capacity to put the People’s Liberation Army in a better position for a potential Taiwan invasion, while the US will continue its efforts to “turn Taiwan into a porcupine”. The US Pacific Command will shore up US military operational effectiveness in the Taiwan Strait, South China Sea, East China Sea, in Guam, and the Philippines. There will also be an elevated risk of military accidents that spiral out of control.
Adding to these uncertainties, there are several potential wild cards for the region that we are watching closely, including:
These interlocking global conflicts, and their importance to the broader theme of great-power competition, are reinforcing policymaker priorities around national security, often at the expense of economic efficiency. This will continue to be true in a Trump 2.0 and will likely accelerate.
Great-power competition themes once again apply here. Drone and related technologies (communications, electronic warfare, missile/drone defense, etc.) will be in higher demand given their demonstrated battlefield effectiveness in the Ukraine conflict, which continues to be a “laboratory” for emerging defense technologies. Given China’s dominant position, critical minerals offer another promising thematic opportunity in a higher-conflict world, particularly with close US allies (Australia, Canada, etc.), as well as offering more “balancing” geopolitical and economic opportunities for Chile, Argentina, Brazil and a variety of countries in Africa (home to 85 percent of the world’s manganese, 80 percent of platinum and chromium, as well as large reserves of cobalt, graphite, copper, etc.). These include South Africa, Zambia, the Democratic Republic of Congo, Namibia, Ghana, and Zimbabwe (again, where China has a geostrategic and diplomatic lead over the West).
I am less concerned than the consensus that a Trump 2.0 leads to a breakdown of global security institutions including NATO, the QUAD, AUKUS, and others that are playing an increasingly significant role in the institutionalization of great-power competition. That’s because these issues are structural, long-term, mostly bipartisan, well-supported across the US global alliance system, and in my view will live beyond the real policy differences of either a Trump or Biden 2.0. Therefore, long-term incentives remain high to accelerate, not decelerate, these institutionalized security responses to deepening threats posed by China, Russia, Iran, North Korea, etc. This is especially so around emerging technologies and efforts to revitalize US and allied global industrial and defense industrial bases following Russia’s invasion of Ukraine.
That said, a Trump 2.0 would likely have impacts on the margins, and some could be significant for the long-term. Trump’s recent campaign comments stating he would encourage Russia to “do whatever the hell they want” to NATO countries he deems “delinquent” on national security spending have, of course, led to increasing concern about US military commitments across Europe. While I don’t believe the US is likely to pull out of NATO (there is little to no support for this across Capitol Hill), the potential alone is enough to lead to increased (or at least, sustained) defense spending across Europe, the Indo-Pacific, and elsewhere. The “Trump threat” will also incentivize greater military coordination among a variety of US allies given existing security challenges from Russia, China, etc. Furthermore, reduced confidence in the US security umbrella is already sparking real conversations about the rising probability of nuclear weapons proliferation, not only by “rogue” states, but potentially by US allies Japan, South Korea, Saudi Arabia, and across Europe.
In addition to the themes highlighted above, I would underscore the defense-demand equation under a Trump 2.0. Incentives to “go it alone” on defense across Europe and with countries in the Indo-Pacific will be high. This includes the potential for nuclear weapons procurement and maintenance, which of course, would present another set of investment risks and opportunities.
No election primer about national security and geopolitical stresses would be complete without the consideration of climate change. It matters greatly to today’s already complex, dangerous, and unpredictable geopolitical backdrop and adds long-term and meaningful structural stresses to it.
The impacts of climate change are hitting hardest along the equator and the tropics, home to some of the most intractable geopolitical hotspots (west, east, and North Africa, the Middle East, Iran and Afghanistan, the India-China and India-Pakistan borders, Taiwan and the South China Sea, large parts of Central and South America, etc.), and where the institutional capacity to respond to these developments tends to be lowest. The Pentagon is forecasting “catastrophic impacts” in this climate “hot zone” over the next decade if, as expected, we continue on current C02 trajectories. As a result, national security policymakers are planning for more climate migration, more resource wars, failed states, rising extremism, more health and pandemic issues, and a host of other national security nightmares.
This is the national security context in which November’s election takes place, and it’s an aspect of climate change that I believe remains underappreciated — and, therefore, largely mispriced — by markets. A Trump 2.0 would obviously raise important questions about strong US climate priorities existent in the Biden administration, including another potential US withdrawal from the Paris Climate Accords. I’m a bit out of consensus on what I think it means for the direction of climate policy in the US, as well as private, state, and municipal efforts, which, given my national security orientation, points to an accelerating need for the energy transition and climate adaptation regardless of political noise.
That said, a second Trump administration is likely to prioritize US fossil fuel production relative to decarbonization, and to use this expanded energy capacity as “leverage” in more bilateral relationships globally. I also expect that changes are coming to the Inflation Reduction Act (particularly around incentives), although this will be dependent on domestic political considerations and the makeup of the new Congress. But, as stated above, I suspect that Trump 2.0 climate policy will merge with his trade agenda, particularly in areas that are “national security” focused on the great-power context: critical minerals, EVs and related inputs, solar panels, etc. This is likely to produce additional geopolitical friction with US allies and adversaries alike.
More broadly, a “transactional” US foreign policy could also come to bear in the climate context. While a low probability given the poor state of US-China bilateral relations, we should remain open to the possibility of a “grand bargain” with Beijing over climate, given the shared national security aspects both countries must manage over time.
It’s no accident that great-power competition investments feature climate adaptation and decarbonization themes — both are critical and long-term drivers of current and future policy, globally, given the core national security imperatives of climate change. Companies around the world are already benefiting from a “multi-trillion dollar” revenue opportunity in helping societies adapt to rising temperatures, food and water scarcity issues, more storms, flooding, rising sea levels, and other climate impacts that have national security implications. These ideas apply equally to fixed income and multi-asset portfolios, as these climate opportunities go well beyond public markets, particularly in agriculture and other human-centric areas. Finally, because every country views “energy as national security,” a Trump 2.0 will likely offer new opportunities for both fossil fuel producers, as well as for a host of renewable energy strategies.
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Monthly Market Review — August 2024
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Brett Hinds
Jameson Dunn