Investors have been slow to wake up to the scale of change Donald Trump is trying to engineer, in part because it seems so wild. But inertia could be costly.
Mar 21, 2025 – 8.56am
Matt King was watching the discussion of the US Federal Reserve interest rates decision on Wednesday night when he noticed something.
Or rather, the absence of something.
“We were struck by the normalcy of the conversation, the sense of it being business as usual, a little extra uncertainty notwithstanding,” says the former Citi strategist, who now runs his own firm called Satori Insights.
King says investors are making a big mistake. The Trump administration’s approach to tariffs, and its bold plan to devalue the US dollar via what has been called the “Mar-a-Lago Accord”, should have “sparked an even greater flight out of US dollars, debt, and risk”. That it hasn’t, he says, suggests investors don’t understand Trump’s determination to change the world.
King’s right. Even now, you don’t have to go far to find investors who believe that Trump is bluffing. Surely, he’ll step back from the brink and change his policy agenda if the markets and/or the economy tanks. But it’s becoming clear Trump and his team aren’t changing course – which means investors are underestimating the scale and speed of the change Trump wants to bring about.
‘Deep structural changes’
Macquarie strategist Viktor Shvets had long argued the world was heading for a replay of the 1930s when a combination of “wars, pandemics, recessions, climate disasters, inflationary spikes and collapses, people lost trust in the system and were willing to entertain radical answers” – leading to polarisation, populism and ultimately, war.
Shvets had consistently reassured us the world wasn’t there yet – essentially, people were not angry enough. But he’s changed his mind.
“The last two months convinced us that we are already there, and debates about intensity of tariff wars, changes to S&P 500 targets or preoccupation with the Fed miss the wood for the trees: these are not short-term bumps on the road that need to be navigated, but deep structural changes.”
There are a few key implications of this. The first is that democracies will atrophy, with more and more people living in what Shvets calls “anocracies” – democracies stripped of their meaning. “Today, we are already down to less than 30 fully fledged democracies … while about 70 per cent of the world’s population already reside in various autocracies, versus 50 per cent in 2011.”
Shvets says that as in the 1930s, the world is being increasingly led by “nationalistic strongmen”. US Vice President J.D. Vance, he says, is closer to the spirit of this new age than Elon Musk.
‘Far more intrusive state’
The second implication is more government intervention in everything from trade and capital flows to industrial policies and mandates. There may be some attempts at deregulation, but don’t be fooled. Shvets says investors should be prepared for a “far more intrusive state role in every aspect of life”.
A third implication is the reversal of globalisation, as protectionist policies become more commonplace and citizens demand greater self-sufficiency and localisation. Shehriyar Antia, macroeconomist at $US1 trillion ($1.6 trillion) investment giant PGIM, sees this as yet another big shift investors are only slowly waking up to as Trump turbocharges the remaking of global trade.
“What the market is responding to, I believe, is this orthodoxy not just being challenged, but being disassembled and being dismantled,” he says. “Orthodoxies do not fade away. They do not just go gently. We are in the early stages of a new era of globalisation, and it’s going to redefine the macro investment landscape.”
At the heart of these three big shifts – diminished democracies, increased government intervention and geopolitical ruptures – is the concept of trust.
Trump has come to power by convincing voters that the old systems – political, bureaucratic, legal, geopolitical, financial – can no longer be trusted to give citizens and America a fair go. For Team Trump, and particularly Stephen Miran, Trump’s chairman of the Council of Economic Advisers and the architect of the Mar-a-Largo Accord, America’s large current account deficit is a symbol of how the nation is being ripped off by others.
The idea behind the accord is that the US will give the G7, the Middle East, and Latin America security and access to US markets. In return, these countries will agree to intervene to depreciate the US dollar, grow the size of the American manufacturing sector, and solve Washington’s debt problems by swapping existing US government debt with new US Treasury century bonds. A series of carrots (including security guarantees) and sticks (including tariffs) help seal the deal.
But as King argues, America’s large current account deficit is also a symbol of America’s attractiveness to foreign capital. If the US damages or even loses the trust of its allies and debt holders, the consequences will be far-reaching. We might even see Germany’s vote this week to spend whatever it takes to re-arm as an early example. ‘It’s a dangerous time’
Greg Jensen, co-chief investment officer at Ray Dalio’s hedge fund giant, Bridgewater Associates, succinctly summed up the key implication for investors in an article in the Wall Street Journal this month.
“The US push to reduce trade deficits and escalate tensions with key allies puts at risk the ability of US assets to draw in capital from the rest of the world,” he wrote. “It’s a dangerous time to be overexposed to US assets, and almost everyone is.”
Including, of course, Australian investors, particularly via their superannuation fund holdings.
Shvets sees two important differences between today and the 1930s. First, capital is abundant, and the world is hyper-financialised, meaning everyone has a stake in protecting asset prices. “This is a meaningful brake on the system and extremes that also cushion real economies.”
The second is artificial intelligence. In as little as a decade, Shvets says, “the role and functioning of labour, capital and money will be unrecognisable, deepening disinflation and altering political and growth trajectories”.
