- Geopolitical Strategist
United Kingdom, Institutional
Change
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The first Trump administration isn’t a perfect analogy for assessing what kind of US foreign policy we should expect over the next four years. Unlike the first time around, we now have the largest war in Europe in decades, the biggest conflict in the Middle East in decades, increasing military tensions in the Taiwan Strait and South China Sea, as well as a rapidly fracturing global order that pits China/Russia/Iran/North Korea against the US/NATO/Japan/South Korea/Australia blocs. In addition, we are seeing the increasingly negative national security implications of climate change. These shifts in the geopolitical backdrop are structural, long term, and will likely continue regardless of this election result.
Differences in approach to national security
US national security policies will matter to this backdrop, and I expect the following in a second Trump administration:
- A more “transactional” and more “muscular” approach to US foreign policy — i.e., more reliance on bilateral negotiations, with less emphasis on long-term strategic implications. This represents a big departure from the Biden administration’s more multilateral approach, and an accelerating focus on defense/national security across the board.
- More use of US economic power as “leverage” across the geopolitical landscape — i.e., significantly higher tariffs on China, but also on some allies across Europe and the Indo-Pacific, and a higher priority on US energy production and export.
- A wider set of potential outcomes in Ukraine including increasing US pressure on the Zelensky government to negotiate an end to the conflict, which is now approaching its 1,000th day and now includes direct military engagement between Ukrainian and North Korean soldiers.
- A more hawkish US foreign policy toward Iran, with fewer restrictions on Israeli military policy in the region.
- An ongoing focus on great-power competition and strategic decoupling, though with a more unilateral focus through additional executive orders and a heavier emphasis on tariffs. This is less of a departure from the current administration. The China issue remains largely bipartisan.
- Trump’s return to the White House opens the door to US-China negotiations across a number of key geopolitical issues, including Taiwan, so again, there is likely to be a wider set of potential outcomes for us to be considering over the next four years.
- Less emphasis on climate change through the national security lens, with potential changes coming to the Inflation Reduction Act and other federal climate policy priorities.
- Structurally, Trump will face fewer internal constraints than his first administration — particularly if the House also stays with the GOP — which widens the set of potential outcomes across the board.
Investment implications
All of this remains supportive of existing long-term national security investment themes, including legacy defense, defense innovation, and in particular, climate adaptation given that there will likely be less momentum toward decarbonization at the federal level over the next four years; this backdrop will also likely accelerate disruption/differentiation across regional, country, industry, company, and asset class levels — again, an ongoing positive for active management.
What I’m watching from here
- Where the House of Representatives ends up in terms of Republican/Democratic balance, and how this impacts US defense spending and other national security legislative priorities.
- Who Trump attracts to key national security positions in his cabinet. So far, most of the floated names have professional experience and will likely be confirmed by the US Senate.
- Where tariff levels end up, and when they would be implemented. This will be worked out during the transition, so we should have a better indication of implications in coming weeks.
- How US adversaries and allies now respond to this coming shift in US administrations, including Russia, China, and key US allies globally.
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Monthly Market Review — August 2024
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Brett Hinds
Jameson Dunn