What is Trump's next move?

Source: MiaoTou APP

Trump 2.0 Cabinet is not only a power layout, but also a trailer for future policy trends.

After the US election, the market focused on the policies that the Trump administration will introduce, especially the trend of China policy. During his second term, the composition and position of the cabinet members will undoubtedly be the vane for judging the future policy direction.

In theory, the appointment of US cabinet members requires not only Trump's nomination, but also the confirmation of the Senate - this step is the "key to success or failure". Fortunately, in the new term, the Republicans continue to control the Senate, so Trump can more smoothly advance the cabinet nomination and policy agenda.

After the election results were settled, Trump quickly entered the "full speed ahead" mode, completing the nomination of 15 cabinet ministerial positions in just 15 days, and nominating more than 20 key figures.

Next, we will analyze the characteristics of Trump's new cabinet selection to interpret the future policy direction.

#01 Trump's policy implementation may be accelerated

The selection of Trump 2.0 cabinet emphasizes loyalty and trust rather than professionalism. This strategy will reduce internal friction and ensure more efficient government decision-making.

In his first term, many controversial decisions of Trump exposed the differences among cabinet members, especially on immigration, tax reform, diplomacy and social issues. For example, on the policy of separating immigrant families, Secretary of Health and Human Services Tom Price and Secretary of Homeland Security Kyle Nielsen and others publicly expressed their opposition, which eventually forced Trump to sign an executive order in June 2018 to stop this policy.

In addition, Trump's relationship with his first Secretary of State Rex Tillerson was also tense. It is reported that Tillerson once bluntly called Trump "stupid" in a private meeting, and this remark eventually led to his dismissal in March 2018; Trump's chief strategist Cohen also left the White House due to differences with Trump's policy direction.

To avoid a repeat of the cabinet disputes in his first term, Trump is more inclined to select cabinet members who are loyal to him in his second term, rather than relying solely on their professional abilities.

His nominations usually come from three categories of candidates:

The first category: People who have firmly supported Trump's policies and defended them. For example, Secretary of State Marco Rubio, Attorney General Pam Bondi, and Transportation Secretary nominee Sean Duffy, who defended and voted for Trump in the impeachment case and the Capitol Hill incident.

The second category: Core members of Trump's campaign team. For example, White House Chief of Staff Susie Wells, Commerce Secretary nominee Howard Lutnick, and Education Secretary nominee Linda McMahon played an important role in Trump's campaign fundraising and team operations.

The third category: Well-known figures who publicly defended Trump and criticized the Democratic Party, such as Fox News hosts Duffy and Hegseth.

These nominations highlight the characteristics of Trump's current administration: loyalty first, ability second, and behind them also reflects Trump's determination to break the "Washington establishment." Trump regards the Washington establishment as a "political swamp" full of bureaucracy and collusion of interests. He believes that business management experience can improve government efficiency and execution, so he chooses business executives and military figures with non-traditional backgrounds to break the political game.

For example, Howard Lutnick, the nominee for Secretary of Commerce, is a leader in the financial industry and lacks political experience; Linda McMahon, the nominee for Secretary of Education, was once the CEO of a wrestling company and lacks a background in education; Ben Carson, the nominee for Secretary of Housing and Urban Development, is a famous neurosurgeon and has no political experience.

All of these people are believed to be able to help Trump make quick and decisive decisions when reforming economic policies and promoting industry interests.

Although most members of the new cabinet do not have traditional political backgrounds and experience, their policy propositions are highly consistent with Trump, their ideas are more unified, and they can promote the implementation of Trump's policies more smoothly.

In addition, most of them maintain a tough stance on China, which also provides more firm support for Trump's China policy.

#02 Sino-US trade frictions may intensify

In Trump's 2.0 cabinet, the obvious "China hawks" lineup once again occupies important positions.

For example, Rubio was nominated as Secretary of State, while Waltz was nominated as National Security Advisor. The two see China as an "existential threat" and advocate containing China as a core goal of the US strategy. In the book "Decadent Decades", Rubio pointed out that the US's dependence on China for key materials (such as medical supplies, medicines and technical equipment) poses a major risk to national security.

In addition, Trump also nominated Jamison Greer as the US Trade Representative on November 26, 2024, a key position that directly affects Sino-US trade. Greer served as Chief of Staff to Robert Lighthizer, who was known for his tough stance on China - leading the Sino-US trade war and promoting high tariffs on Chinese goods and 301 investigations.

The reason why Greer became the successor is mainly because he is familiar with Lighthizer's working style and policy framework and has played an important role in the Trump administration's trade policy.

Greer's nomination will also increase market concerns because his business background and global economic perspective may make him take more radical measures, such as trade barriers and economic sanctions, to promote Trump's strategy of reshoring American manufacturing.

Here is one more point, why does Trump advocate the reshoring of American manufacturing?

The United States was once the world's largest manufacturing country, but since the end of the 20th century, especially with the intensification of globalization and industrial outsourcing, many manufacturing companies have moved production to countries with lower labor costs, especially China and other Asian regions. This change has caused the United States to lose sufficient manufacturing capacity in some areas (such as basic consumer goods production) and has to rely on imports, especially goods from China, to meet market demand.

Trump believes that globalization has brought unfair competition to the United States, and the labor advantages of low-cost countries have enabled foreign-funded enterprises to dominate the US market, thereby exacerbating the loss of American manufacturing. Therefore, he proposed a policy of reshoring manufacturing, striving to restore domestic productivity, stimulate employment and revitalize local economies.

This is also an important reason why Trump has implemented tariff policies. He tried to bring back American manufacturing by raising import tariffs. Although he has not yet officially taken office, Trump announced on social media on November 25, 2024 that he would impose a 10% tariff on all goods imported from China, further strengthening this strategy.

Unlike the United States, China is the world's largest manufacturing country (according to the World Bank data in 2023, China's total manufacturing output ranks first in the world, surpassing the United States and the European Union), but the problem it faces is that the domestic consumer market is relatively insufficient.

Therefore, China has set its sights on overseas markets, especially markets with strong consumption power such as Europe and the United States. According to the 2023 global trade in goods data of the World Trade Organization (WTO), China's export share of the international market in 2023 was 14.2%, of which the European and American markets accounted for about 40%.

The economic complementarity between China and the United States (the United States lacks production capacity, China lacks consumption) has greatly promoted trade and cooperation between the two countries, but as trade barriers increase, this complementarity has gradually been undermined. External pressure has also prompted China to increase policy adjustments, promote domestic consumption and industrial upgrading, and seek more international cooperation opportunities. An important way is the "Belt and Road" initiative.

Through the "Belt and Road" initiative, China can export its industrial capacity, infrastructure construction experience and technology to countries along the route, promote economic development and improve infrastructure in these countries, and form a complementary relationship with local natural resources (such as minerals and energy) .

And Unlike the model of Western countries relying on "credit standard" and financial leverage, China's "Belt and Road" initiative adopts a "physical standard" path, through direct investment in infrastructure construction and exchange with local natural resources, which is obviously a more sustainable economic development model. Especially when the global financial system (especially the credit-based system) is weak, the "physical standard" may indeed show different effects than expected and greatly enhance the economic stability of some countries or regions.

In summary, Trump's "America First" policy and the tough stance of his cabinet members will undoubtedly deepen the tariff barriers between China and the United States. In the short term, we may face some economic pain, but this is also expected. But as the "Belt and Road" initiative advances, China may still gain more opportunities in the global economy, especially in industrialization and regional cooperation.

Of course, the key factor affecting the direction of the A-share market is not only the Sino-US trade policy, but more importantly, the monetary policy path of the Federal Reserve.

#03 Is the Federal Reserve going to be "emptied"?

By reviewing the performance of A-shares during the Trump and Biden periods, we found that the Federal Reserve's monetary policy is one of the key factors affecting the trend of the A-share market.

During the Trump administration (2017-2020), the A-share market performed well overall, especially in 2017, 2019 and 2020, due to the Fed's loose monetary policy. During the Biden administration (2021 to present), the Fed's continuous interest rate hikes led to higher capital costs, tighter liquidity, and weak A-share performance, which was mostly on the decline.

So the question now is: Will the Fed continue to adopt an accommodative monetary policy?

When making monetary policy decisions, the Fed usually weighs multiple factors such as economic growth, inflation and employment to ensure the healthy and stable operation of the economy. We have also analyzed before that if the Trump administration imposes a large tariff increase, it will directly raise the cost of imported goods, disrupt the global supply chain, and reduce market competition, all of which may aggravate inflationary pressure in the United States, forcing the Fed to adjust its monetary policy to cope with rising inflation.

However, in Trump's second term, the situation may usher in some turning points.

Compared to other positions, Trump has experienced repeated weighing when choosing the candidate for Secretary of the Treasury. Scott Bessant was initially nominated, and then Howard Lutnick (later nominated as Secretary of Commerce) and Kevin Walsh were considered, and finally returned to Bessant.

On November 22, 2024, Trump nominated Scott Bessant, founder of the global macro investment company Key Square Group, as Secretary of the Treasury.

This decision may be more of a reflection of Trump's high regard for loyalty and policy consistency.

Bessant served as chief investment officer at Soros Fund Management and provided a lot of economic policy advice to Trump during his 2016 campaign, especially in promoting economic growth, tax reform and fiscal policy.

Bessant and Trump are highly aligned in their economic ideas, and both tend to stimulate the economy through loose monetary policy, especially in a low-growth or uncertain economic environment.

More importantly, Bessant once proposed the establishment of a "shadow Fed chairman", advocating that the new government should select the next Fed chairman as soon as possible and promote reforms to the Fed's policy-making process.

If this proposal is adopted, it means that the Trump administration may exert greater control over the Fed in the field of economic policy, making its decision-making process more consistent with government policies. Such intervention may undermine the independence of the Fed, making it no longer able to make decisions based entirely on economic data and long-term goals, but instead need to take into account the government's political agenda.

In this case, the Trump administration obviously hopes to ensure the effective implementation of its economic policies through more direct control and further consolidate the "America First" economic concept. Trump has always advocated promoting US economic growth through low interest rates, fiscal stimulus and large-scale infrastructure investment, and promoting employment and consumption through these measures. In a low interest rate environment, consumers and businesses are more inclined to borrow and invest, which is crucial to promoting economic growth.

If the Trump administration can really "override" the Fed, it may make loose monetary policy the norm, which is also highly consistent with his consistent "America First" policy. By then, we may usher in a more political monetary policy environment, which will do more good than harm to the A-share market.