Week signals: White House down
Plus: watch points for Argentina, ASEAN, Japan, South Korea, and China.
Hello,
In this week’s edition of Week Signals:
IN REVIEW. The yield curve and the J-curve, a building backlash, late-stage Americana, and tales from the crypto.
UP AHEAD. Elections in Argentina, the ASEAN and APEC summits, bilaterals with China and Japan.
And don’t forget to connect with me on LinkedIn.
Week Signals is the Saturday note for clients of Geopolitical Strategy, also available to GD Professional subscribers on Geopolitical Dispatch.
The Week in Review: Present at the destruction
The week began with a Colombian pivot in Washington’s war on drugs. It ended with an aircraft carrier sent to the Caribbean. In between: gestures and threats in Israel and Europe; constitutional crises in Mongolia and Peru; trade malarky with Canada and China (more on that in the Week Ahead); and glimmers of hope in Bosnia and Cyprus.
Events, as ever, continued to revolve around the occupant in the White House, with the key difference that half the occupant’s home now appears to be demolished. The Trump Administration responded to the surprise with its characteristic mean-girl trolling. Yet few outside the most committed of MAGA supporters will surely welcome the semi-obliteration of a civic icon without deliberation or debate.
The US would seem to be in one of its moments of self-destruction. As the executive moves fast and breaks things (reminiscent of a hustling property developer making facts on the ground), the House has been out of session for a month, and funding for the civil service has been suspended. The courts continue to function, but air traffic controllers have been without pay. Food stamp recipients are at risk of going hungry, and a second subprime lender has gone bankrupt (in another sign of waning economic health disguised by stratospheric equity prices). It’s a very good thing, perhaps, that an unnamed “friend” has this week donated $130 million to prevent soldiers from losing their pay.
To much of the world, the process appears familiar. This is how “normal” countries operate. Yet the US is not and should not be seen as normal. It’s better than that. While many a tin-pot dictator has prorogued parliament to rule by decree, or built himself a lavish ballroom while his functionaries go begging and his troops become restless, this kind of leader was not who the founding fathers had in mind when they wrote the constitution. And while Trump was elected to disrupt a tired and spendthrift mode of technocratic governance, most voters probably didn’t want a president who would pardon a crypto fraudster doing business with his sons, seek to award himself a $230 million payout from his own Justice Department, or create an atmosphere where the US Marine Corps would fire Howitzer shells into a San Diego freeway while the Vice President and “Secretary of War” watched on.
There are plenty of places to wallow in Trump Derangement, but this all becomes relevant for geopolitically-minded businesses and investors insofar as it could herald an equal and opposite reaction, at a time and in a way unknown, but in a ferocity that history suggests will only be matched by the excesses it is reacting against. You can fool some of the people some of the time, but not all of them for very long. At some point, whether at the midterms or more likely in 2028, the median American voter, assuming one still exists, is going to swing the pendulum again ,and just as Trump was an extreme reaction to wokes and elites, the demagogue who follows may be more extreme still, lest the US rediscover its Tocquevillian civic centre.
This is on the minds of many in New York, as a euro-style socialist looks set to be elected mayor by a landslide. It may also be in the background of the US dollar’s poor performance, and, until this last week, the breakneck surge in the price of gold. Whether the reaction is Thermidorian or thermostatic, the Trump revolution is, on present course, likely to be followed by a counter-revolution (or counter-counter-revolution if you prefer). And in this, the US is not just in danger of having one brand of policy extremism and incompetence followed by another, but seeing further US influence and prestige diminished yet again.
In 2006, political scientist Ian Bremmer wrote of the “J-curve”, where dictatorships were stable, and so were democracies, but that instability emerged when dictatorships sought or were forced into liberalisation. This insight can be seen in any number of examples, whether the final years of the Soviet Union, the Arab Spring in 2011, or Nepal, Bangladesh and Madagascar today. But while it’s generally understood in the transition from autocracy to freedom, it holds when going the other way too. As the US shifts from the land of the free to a hybrid democracy with Hungarian characteristics, expect the instability to rise.
Whether via push-back from the states (e.g., Pritzker and Newsom), from Congress (so far non-existent but potentially latent), from the courts, or the streets, the strength and style of this J-curve response will, in turn, be guided by the potential for an equity market crash, which with each passing day becomes more of a Wall Street conviction.
Perhaps the urgent gerrymandering by some in the Republican Party, like ants preparing for a storm, can be seen in this regard – less a hubristic grab for power than a desperate attempt to cling on while they can. Likewise, the stacking of crypto and AI-friendly regulators – an effort to make hay rather than restructure the economy around a chimera.
As some more thoughtful Republicans have been warning, a bloodbath may arise when the pitchforks come out, as they almost invariably will. Whether due to a J-curve transition, a democratic revolt, a self-inflicted misstep (of which there have been many), or a black swan event, the time to prepare for late-stage capitalist dénouement may be upon us. Whether in the US or overseas, what should firms and investors watch out for, and what should they do next?