Are We Sleepwalking Into an Energy Disaster?

By Dee Smith

The Iran war, like many things in the world these days, is full of contradictions and cognitive dissonance. For example, multiple expert voices have, since early in the war, been predicting a dire energy supply crisis from the closing of the Strait of Hormuz, the narrow strip of ocean between Iran and Oman though which about 20 percent of the world’s supply of oil passes in “normal” times.

Such concerns have not abated. The chief economist of Rystad Energy told Fortune magazine on 6 May: “We’re still kind of sleepwalking into this approaching disaster. There is little doubt there is going to be a disaster.” Numerous other informed observers have made similar points.

But where is the disaster? Why have we not yet really started to feel it?

Some places have. South and Southeast Asia, for example, are already buckling under the price increases and shortages. And many companies—first and foremost airlines—are rapidly feeling such pressure that they are curtailing operations. Lufthansa has cancelled over 20,000 flights.  Spirit Airlines went out of business entirely, with a sudden loss of 17,000 jobs.

Nevertheless, the world as a whole and the West and China in particular are not yet visibly reeling. While prices are substantially up, oil markets have not shot to and stayed at the heights of over $140 per barrel that were predicted if the war continued this long. The prices of West Texas Intermediate and Brent crude hover at this writing between US$105 and $110 per barrel on the spot market (for immediate purchase of oil) and around US$80 to $85 on the futures market. The latter is a more reliable indicator of what traders are willing to bet money on. Notably, the divergence between the spot and future markets has been narrowing recently, reflecting what some are calling a “mini-glut” at present.

The reasons for this have been perplexing a number of observers. A few factors are invoked to account for it:

·      The reduction in imports by China (over 4 million barrels a day lower than a year ago), which is probably both price-driven demand destruction among consumers in China, and Chinese government policy since the start of the war allowing drawdowns of stocks and prohibiting exports.

·      The surprising increase in U.S. exports of petroleum and its products, which is nearly 4 million barrels per day above previous-year levels (much of this reflecting the drawdown of the U.S. Strategic Petroleum Reserve).

·      Rationing in the Global South, which has created demand destruction. The Philippines, for example, went to a 4-day work week shortly after the war started.

·      Oil stocks had been at or near a record high at the start of the war, with a similarly high level of oil in transit on the seas at that time.

But this reprieve is short-term, and it may end quite soon and quite abruptly. The U.S. administration, for example, may suddenly come to terms with how much of America’s stocks are being drawn down, what this is doing to gasoline and food prices, and do an about-face. An oil export ban is already being quietly discussed. China, similarly concerned about stock drawdowns, may start importing more oil. The war itself is at risk of turning into a “frozen” conflict, where each side essentially holds the other hostage. But even if hostilities ended today, it would take months to regularize the situation for reasons ranging from de-mining the Strait to physical destruction of various energy facilities in the Gulf, and simply the re-start-up time faced by closed facilities.

If—or perhaps when— a longer-term reconfiguration of energy markets happens, the consequences may indeed be dire. Prices could start to seriously rise again. Some informed estimates predict oil above $200 a barrel, perhaps significantly above.

But serious shortages loom even more threateningly than price increases.

The most alarming aspect of this for both social stability and for everyday life everywhere is the food-petroleum nexus. Food production is overwhelmingly dependent on fossil fuels. Diesel fuel is essential for transporting food from farm to processor to market, whether by truck or rail. But diesel is also essential to farming machinery. And shortages of urea and other fertilizer ingredients from the Persian Gulf will also affect farming.

Global supply chains are now so intrinsically intertwined that this could well evolve into an “everything crisis,” as CNN has put it. From plastic containers for food and water, to bags, solvents, industrial lubricants, medical equipment, cosmetics, footwear, microchips, and even condoms, so much is utterly dependent on petroleum byproducts or other resources of which a significant percentage comes from the Persian Gulf. It is a single point of failure.

When could this materialize? It is hard to say, due to the vagaries outlined above, but the best estimates are by mid-summer. Some sources are quietly saying we could start to see rising alarm again in the next 2 weeks.

Some areas, like Europe and California (which imports about 60 percent of its crude, 20 percent from the Persian Gulf), will be affected before others, but if the status quo continues, all will be affected, everywhere.

It is worth noting that this war—intended by some accounts to keep Iran from acquiring nuclear weapons—has provided Iran with another weapon even more actionable: the ability to close the Strait of Hormuz and essentially hold the whole world hostage. This is not lost on the Iranian regime.

We are suffering again from our recency bias—the conviction that the near future will be like the recent past—and the closely related problem of induction, which makes people discount the possibility of fast, radical change.

These potential events have huge social-stability, business, and geopolitical implications. It is worth restating the obvious point that when people have nothing to eat, they have nothing to lose.

America’s Unwritten Constitution — 2 of 2

The first post in this pair established the backdrop for the current contest between the president and Congress over control of the federal state. This post assesses how that struggle is progressing.

The ongoing contest between the executive and legislative branches — a contest being mediated by the judicial branch — has mostly concerned encroachments on Congress’s “power of the purse.” (The other core question has been the power to declare war.)  One theater of conflict has been federal revenues. The written US Constitution gave Congress the power to impose tariffs on imported goods, as did the unwritten constitution. One result was an incoherent series of vast tariff bills in the 19th and early 20th centuries, taking up a staggering amount of Congressional negotiating time. A major reason for the institution of an income tax (1913) was to escape this chronic legislative morass. Over a century later, President Trump revived tariffs as a revenue source, partly as a way to make possible the reduction of income tax. This of course put the executive in conflict with Congress. A sharply partisan Congress was unable to defend its own powers, but the Supreme Court partly did so in February of this year (see “Peak Trump? – 4 of 4,” 21 Feb. 2026).

A second theater of conflict between Congress and the executive over the power of the purse has been “impoundment” via “rescission.” This obscure strategy, based on a 1974 law, also aims at the “administrative state” discussed in the last post. Most administrative-state activities are financed by “discretionary spending” — federal spending that goes through Congress’s appropriations process. Discretionary spending is nearly 30% of federal spending. Half of it goes to defense. The other half goes to food safety, science research, homeland security, education, and so on, most of which the White House’s proposed 2027 budget would cut by a further 10%. “Mandatory” spending, like Social Security and Medicare, is separate and accounts for 60%. The balance goes to pay interest.

Since the Thomas Jefferson administration, “impoundment” — withholding some amount of appropriated, discretionary spending — has occasionally been used by a president to manage expenditures, for example when money had been appropriated for a purpose that later ceased to exist. This was an example of a feature of an unwritten constitution. It worked for almost two centuries until President Nixon tried to use impoundment much more expansively to advance his agenda; Congress retook its authority via the Impoundment Control Act (ICA) of 1974. This included a process by which a president could send a special message to Congress requesting “rescission” of appropriated monies.

President Trump, in his first administration, asked Congress for 34 rescissions totaling $14.8 billion. Congress did not allow any of them. He asked again, in the last days of that term, for 73 rescissions totaling $27.4 billion. Again the request was refused. In his second term, the president asked for $9.4 billion in rescissions. These were the initial cuts to USAID, public broadcasting, support for “color revolutions around the world” and the Green New Deal, and other administrative-state, discretionary expenditures. Congress passed $9 billion of the cuts and the Rescissions Act of 2025 became law on a narrow party-line vote. The Trump administration went on to make an additional $5 billion in cuts to foreign aid and international organizations in August through a “pocket rescission,” a maneuver that allowed it to eliminate Congressionally appropriated funds without any approval from Congress at all.

By such means the current administration has taken some budgetary authority away from Congress, effectively altering the constitutional balance of domestic governing power. It is all pretty murky and has occurred without much public debate. The same is true of the justification for it, the “unitary executive theory.” This theory has nothing to do with foreign aid, public broadcasting, color revolutions or Green New Deals. It only has to do with power. The narrow basis for it is the assertion that the executive branch has complete power to fire anybody the executive might care to fire — for example, anyone in the administrative state. The broader basis is the notion that it is up to the president to decide whether or not he has adequately carried out the will of Congress. It is agreed that Congress has the power to approve hires; but does it have the power to approve firings? The answer has been controversial since the beginning of the republic and has taken different forms for 250 years. They are all part of America’s unwritten constitution.

It is easy to underestimate this administration’s determination to assert the power of the unitary executive to dismantle what Congress has mandated by trimming Congress’s ability to control both the raising of revenue and the spending of it. An unwritten constitution seems at times to be overtaking the written one. The Supreme Court appears to be appreciating the magnitude of this, which is why the president made the extraordinary assertion that the courts really should not be independent at all. 

The risk to investors is that the underlying rule of law, which has stabilized markets since the 18th century, will be weakened. While, as every prospectus says, past performance is no guide to future earnings, it should be remembered that one enduring result of England’s Glorious Revolution of 1688 was precisely — by making Parliament permanent and in a position to restrain the spending of the monarch as executive — to stabilize property relations so England could invest in long-term projects like infrastructure, be restrained from expensive wars, and enable the birth of modern industrialization. That example was very much in American minds when the US system was being designed 250 years ago. Limiting the power of the executive was part of the foundation of modern government and modern prosperity.

America’s Unwritten Constitution — 1 of 2

At an Easter celebration on 1 April, US President Donald Trump, having just been, earlier that day, the first president to attend a Supreme Court argument, attacked the court’s Republican justices. He said he expects Democrat-appointed judges to oppose him: “You can have a case where the person you're suing admits they're guilty and if you're in front of a Democrat judge, he'll overturn.” A Republican judge has a different agenda. A Republican judge or justice will say, “I don’t care if Trump appointed me. … I’m voting against him.” Why? “Because they want to show their independence. Stupid people.”  

SIGnal has been arguing since the beginning of the second Trump administration (see “The Importance of Ideology,” 22 Feb. 2025; “Peak Trump – 2 of 4,” 27 Jan. 2026) that  its core goal is to alter the domestic balance of power in favor of the White House and at the expense of Congress and the courts. Judicial independence is nonetheless a basic constitutional principle. “The complete independence of the courts of justice is peculiarly essential,” Alexander Hamilton wrote in 1788 (Federalist 78). He cited Montesquieu: “there is no liberty, if the power of judging be not separated from the legislative and executive powers.”

The current administration’s opposition to judicial independence is not about the economy, but it definitely has economic implications for investors. So it is worth taking a moment to look at why we are where we are.

The English have long taken pride in having an unwritten constitution, seeing it as more open to change as society evolves and as evidence of a society that is able to cohere without having all its rules written down. The contrasting case is an 18th-century collection of colonies, strange, fractious, and diverse in every way, known as the United States, that had to write down its constitution — an innovative approach at the time, later much copied — because it probably wouldn’t have been able to hold itself together otherwise. The US constitution laid out the respective powers of the executive, legislative, and judicial branches with the idea that they would balance each other. The enumeration of each branch’s powers was expected to make the political system relatively stable. That stability was in turn thought to mean that the laws would be fairly applied and widely respected, which would ensure that contracts could be enforced and “the pursuit of property” enabled.

It worked well, but the domestic balance of governing powers was never all that stable. There was a written Constitution, but there was also an unwritten one, subject to change. For example, in the 70 years between revolution and civil war a president could not get far on foreign policy without the very active support of Congress. He certainly could not start wars. That then slowly changed. By contrast, as the responsibilities and activities (and revenues) of the federal government grew in the early 20th century, and executive agencies were created to carry out those activities, the enumerated power of Congress to control federal expenditure (“power of the purse”) was applied to a vast new territory of federal effort that was in one sense directed by Congress, in another sense by the president as executive, and in some ways just directed itself. The Federal Reserve Board is an example.

This was the advent of the “administrative state,” seen by some as necessary for effective governance in a modern economy, seen by others as an unnecessary bureaucratic layer infringing human liberty. In the ensuing century-long battle between the executive and legislative branches for control of the administrative state, the advantage has often been with Congress because it had the power of the purse. The first Trump administration accordingly took aim at that power, without much success. The second one has done better.

The second and final post will look at how the executive has gained power over the legislative branch in the current presidential administration.

Peak Trump? (4 of 4)

The first three parts of this series (one, two and three) considered US President Donald Trump’s foreign policies, his approach to domestic government agencies, and his handling of the domestic economy. The main arguments made were that, leaving aside bursts of military action paired with peacemaking, President Trump’s foreign policy was propelled by a desire to reverse a perceived Western civilizational decline caused by “wokeness” plus non-Western immigration. On the economic side, it was propelled by a desire to re-balance trade with countries seen as having taken advantage of the US. (“We were ripped off by almost every country in the world,” Trump said in his 20 Feb. press conference.)  The president’s policy toward domestic government was dominated again by a desire to combat “wokeness” as well as to shrink government generally while also strengthening the federal government’s position relative to that of states and localities. In terms of wokeness, there was meant to be a type of re-balancing given that, as the president said, “white people” had been “very badly treated.” On domestic political economy, the series argued that the president’s tariff policies and negotiations for inward investment did not have the effects his opponents expected (economic decline, rampant inflation), but they also did not have the effects the president had promised (non-AI manufacturing investment, job creation, deficit reduction). This final post looks at some implications for investors.

The US Supreme Court’s 6-3 decision on 20 February was consistent with SIG’s analysis over the past year that the real crisis in the United States has been a constitutional one. Trump appointee Neil Gorsuch wrote in his concurrence with the majority, “Americans fought the Revolution in no small part because they believed that only their elected representatives (not the King, not even Parliament) possessed authority to tax them. The framers gave Congress alone ‘access to the pockets of the people.’” The president, in reaction, offered a nearly opposite interpretation, citing Justice Kavanagh’s dissenting view that “the decision might not substantially constrain a president’s ability to order tariffs going forward.” So there is now an open constitutional rift on the US Supreme Court. The conflict will be played out between the White House and Congress.

President Trump argued that, because he has tariff powers under authorities other than those considered in the Supreme Court decision, the policy situation on tariffs will now stabilize. Businesses and investors would therefore be able to invest and grow with confidence. This happy outcome seems unlikely. The president’s own initial reaction to the judgment — to immediately impose a new 10% global tariff under a different authority — does not suggest a reasoned calm. His highly personal attacks on the judges who ruled against him, not to mention his predecessors as president (“we had some real dummies”), do not cast oil on the waters. But beyond that, the tariff issue, for months now, has been that rare topic on which a small but significant number of Republicans in Congress have been willing to diverge from the president.  Meanwhile most indicators point to a weakened president, whether in polls or economic data. Even the president’s core support among white Protestant evangelicals — itself a shrinking group in the past several years — has gone down, while backing for his policies among non-evangelical white Protestants has dropped from 46% to 33% over the course of this presidency.

Investors should therefore expect considerable turbulence in the remaining ten months of 2026.  An embattled President Trump who is losing electoral power might not go quietly. At the same time, perhaps the most remarkable thing about the US economy in 2025 was that it chugged along in a somewhat dull but not unhappy fashion despite the tremendous political noise all around. The signature structural problem, as discussed in the previous post, was the national debt, which could get considerably worse if much tariff income ($134 billion last year) drops out. The president believes lowered interest rates under a new Fed chair will solve the problem. It would certainly help the housing sector, but it would not get at the problem of low non-AI-related capital expenditure and related slow job creation.

In SIG’s view the most likely scenario is continued low-to-moderate growth rooted in consumption as we enter the sixth year of expansion. The population will continue to age, particularly with lower immigration, meaning that sectors like health care and entertainment will continue to provide growth as they did in 2026. AI applications that compensate for a shrinking workforce will prosper. Given an aging housing stock, pent-up demand, and a lack of workers, any businesses that can exploit the need for renovation and updating will also thrive. The automobile sector is unlikely to do well as older people drive less — and any sector, like autos, directly exposed to the coming Washington battles should be treated with great caution. The truly adventurous can try to discover how a widely anticipated megadeal between the US and China might affect trade. This fascinating research by Gerard DiPippo holds some clues. But then, maybe there won’t be a megadeal at all, or even a deal. It is hard to price in this level of chaos.

At the same time, the ongoing transfer of wealth from the large boomer generation to the smaller inheritor generations means that wealth will become yet more concentrated in the upper middle class and in those parts of the United States where they are disproportionately represented. Businesses that serve them will benefit. (Mike O’Sullivan’s last post on The Levelling dug into this.) But when the current expansion does end, investors will need to be prepared for a society whose instability will increase as its prosperity becomes less evenly distributed and the Trump administration’s promises of a working-man’s revival go mostly unfulfilled.

Is this Peak Trump? In several senses, yes. This series has argued that the means the president has used are not likely to achieve the goals he has declared or the promises he has made to his core constituency. So it is very hard to see how his political standing can much improve in the coming year. At the same time, it is equally difficult to see how the socially conservative, working- and middle-class, majority male and majority (but by no means exclusively) white, anti-woke Trump voting group will get less Trumpy even if Trump himself fades. The analysis here suggests that group’s discontent is most likely to increase. 

Peak Trump? (3 of 4)

This is the third in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs and argued that many presidential actions abroad in 2025 were performances without a useful pattern, although a theory among his advisers of Western civilizational decline, which complements a similar theory about domestic US decline due to immigration, has had serious foreign-policy effects. The second post looked at the White House’s assault on various government departments, usually with the declared goal of eliminating “wokeness” and DEI programs, and argued that these efforts in 2025 did reduce government but not to the economic benefit of the white men who were seen as left behind by wokeness. This third post analyzes the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The main fact of US political economy in 2025 was that, with low unemployment and strong GDP growth, federal debt increased to record highs. The main sources of growth in federal spending in 2025 were Medicaid, Medicare, and Social Security. Federal income also grew, due to increases in income and payroll tax payments (about two thirds of the growth) and tariff revenues (one third), but it was not enough to outpace spending. The resulting budget deficit of $1.7 trillion at the end of 2025 drove US debt to $37.9 trillion or 99.8% of GDP, a level reached only in the Covid-19 epidemic and the Second World War. 

The Trump administration did make dramatic efforts to reduce government spending, such as at the Department of Education and the Environmental Protection Agency. The deficit declined significantly over the course of the year, even if it remained higher in December than at various points in the Biden administration. But the Trump administration also reduced corporate income taxes, increased spending on defense and immigration control, and continued many Biden-era projects.

The theory was that tax cuts and tariff income, combined with major foreign and domestic investments (often made in return for tariff or other explicit regulatory relief), would both replace lost tax income (with tariff revenues) and stimulate economic growth to “make the pie higher,” in former president George W. Bush’s famous phrase, thereby increasing tax receipts. The pie indeed got higher in 2025, which led to the growth in income and payroll tax revenues for the government. Tariff income has definitely made a fiscal difference as well, of $118 billion in revenue. From a White House perspective, the difficulties in 2025 arose with investment patterns and job creation. The quantities of investment advertised by the administration, whether from overseas or by US multinationals, have been on a giant scale. Actual investments have been dramatically lower, and fixed business investment apart from Artificial Intelligence and data centers was down in 2025. AI and data centers, if they operate as promised, are likely to reduce employment: the white-collar version of industrial robots. Meanwhile, employers added about a quarter the number of jobs in 2025 as they did in 2024, making last year the worst for job growth since the pandemic struck in 2020. Nonetheless, GDP growth has been strong and unemployment has stayed low, if not quite at the extraordinary 3.5% at the end of the first Trump administration.

Overall, the economy did very well in 2025, despite being five years into the business cycle. How much of this success was due to Trump administration policies? Probably very little. The year, in political-economic terms, seems to have been one more of performance than substance, much as with foreign policy. Most economists played the role of doomsayers as President Trump announced tariff after tariff on flimsy national-security grounds. The president triumphantly pronounced the consensus mind to be wrong as unemployment and inflation stayed reasonably low and the leaders of the UAE, Saudi Arabia, Qatar, India, Japan, South Korea, Apple, Meta, Nvidia, and others pledged investments on a scale that, if realized, would have rolled the New Deal, the railroad boom of the 1880s, and sundry other moments of investment-led optimism into one. It was all incredible theater. Meanwhile, an alarmed private sector battened down (except in AI) for year five of the cycle, with the twins of business investment and job creation lying flat. Neither the tariff-inflation apocalypse nor the MAGA investment boom (except in AI) actually took place, and optimistic forecasts for 2026 put the tariffs down as a temporary fad destined to fade into the past.

The real structural shifts were elsewhere and had to do with the redistribution of political power: from states to the federal government, from local police forces to federal security services, from the legislative and judicial branches to the executive. These shifts had economic effects, above all in the shrinkage of the domestic labor supply through reduced immigration and the brutal reinforcement of a zero-sum, post-globalization international order fixated on defensive self-sufficiency. But these shifts were much more political than economic. What the Trump administration aims at is more a cultural revolution than an economic renaissance, and even its economic policies have to be analyzed in that context because that is what is driving them.  

Peak Trump? (2 of 4)

This is the second in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs; this one looks at the domestic scene with regard to government (IRS, SEC, Justice Department, ICE, etc.). The third post will analyze the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The first post in this series considered foreign affairs and stressed two points. The first was that the aggressive acts early in the term (February to June), followed by peacemaking efforts (May to September), revealed a pattern only in the sense that they showed a president believing he had a special role to play on the world stage. His actual actions (a peace initiative in Thailand, a bombing in Nigeria) were primarily opportunities for the president to show himself behaving in a particular way. Analytically, it is a mistake to over-interpret them. The second point was that an administration ideology in foreign affairs does exist but on a separate track having much more to do with immigration and what might be called civilizational issues: arguing for the fairness of modern imperialism, followed by the self-inflicted decline of the West, which the Trump administration feels it is in a position to redress.

The second point was discussed in SIGnal almost a year ago (“The Importance of Ideology,” 22 Feb. 2025). At that time, White House policies expressed ideas earlier published by the Center for Renewing America, an NGO founded by Russell Vought, the president’s budget director. At the end of December 2022, the center published “A Commitment to End Woke and Weaponized Government”; Vought and his center went on to strongly influence the Heritage Foundation’s Project 2025, which despite the president’s early denials has proved to be a useful guide to his administration’s policies. As discussed in SIGnal, the center’s research claimed to have identified a wokeness virus that had originated abroad then entered the US via the State Department and CIA with the willing help of Silicon Valley tech platforms. Wokeness was thought to be fundamentally anti-American and to have permeated government to such a degree that it needed to be dramatically cut back, as if one were removing cancerous tissue. This Vought and the White House set out to do, with no important opposition from State, CIA, or any other part of the supposedly powerful “deep state” — with no effective pushback from Democratic or other political opponents — and with the passive assent or active collaboration of supposedly liberal Silicon Valley, most famously Elon Musk and Peter Thiel. This was the DOGE era. Vought’s Office of Management and Budget, as expected, proved to be the key actor in the reduction of government.

With regard to international institutions and the domestic agencies that interact with them, the administration did not so much seek to advance its views as to withdraw money and participation. Since the US was the principal actor in binding the international system together, non-participation and budget cuts were enough to cause it great harm. Congressional misgivings mattered little: the president had no respect for Democratic views or the established rules of the game; court decisions on the scope of executive powers take too much time; and perhaps most important, the president had no respect for Republican politicians who might oppose him, while he nonetheless had influence with their constituents and an eagerness to use it.

Defunding of State or USAID paralleled the defunding of domestic governance. Defunding was never just about State or USAID.  It was about shrinking government commitments generally. The Securities and Exchange Commission was targeted; by the end of FY 2025 the commission had an attrition rate of 17.8% (a fivefold increase year-on-year) and had lost more than a quarter of its contractor personnel.  The Internal Revenue Service lost just over half ($40.8 billion) of the monies appropriated for modernizing it as well as 25% of its workforce. The Treasury Department, US military branches, and the Veterans Administration also experienced significant attrition in 2025, according to federal Office of Personnel Management reporting, with the military shedding 63,400 men and women. DOGE-enforced layoffs (“reductions in force”) were a very small part of this broad picture. Most people either quit, took buyout offers (counted in public OPM statistics as quitting), or retired. Overall, the US government workforce since President Trump’s second inauguration shrank (Jan-Nov 2025) by 335,000.

The ideological justification for this shrinkage, apart from a simple reduction in costs and corporate regulation, was to combat “wokeness” and the “weaponization” of government. That was Vought’s great theme and shaped the trimming of government agencies. The main proximate enemy was Diversity, Equity, and Inclusion (DEI), which proved to have remarkably few defenders. President Trump’s very first moves were to eliminate DEI from government wherever possible, to use the stick of federal funding to accomplish something similar in universities and the educational system, and to deploy the Justice Department to make companies who had adopted DEI, often at federal direction, to now eliminate it, also at federal direction. The Trump administration was itself weaponizing government, but against wokeness.

Implicit in anti-woke initiatives was the idea that there had been a pre-woke equity based on merit that liberal woke efforts had disturbed and which would now be restored. This was symbolized by the official revival of a classic painting, John Gast’s 1872 American Progress, which features a white-draped flying goddess, Miss Columbia, leading a group of white male settlers west as Native Americans and wild animals flee. It was anti-woke trolling, but the Supreme Court’s decision in Ames v. Ohio — that a majority group, such as straight people, can be discriminated against, and be legally protected from discrimination, in just the same way as a minority group — was more substantial. So were the Justice Department’s investigations into discrimination against majority groups. “White people,” the president said, had been “very badly treated.” According to a Justice Department spokesperson, a decade of “DEI insanity” had “led to blatant, widespread race and sex discrimination.” The department and the administration seek to restore what they see as the pre-DEI balance. Since the only groups that could be seen as discriminated against by wokeness were white Americans, straight people, and men, the restoration aimed at by the Trump administration would need to benefit them if it were to be successful.

Is it working? Early evidence suggests it might not be. Consider the US Army. The method used in the case of the US military was to eliminate preferences based on gender or race. These were believed to have led to poor recruitment. US military recruitment did indeed surge in FY2025, and defense secretary Pete Hegseth attributed it to getting rid of “this politically correct garbage” in favor of “war fighting.” So it is striking that US Army statistics for the regular army show an FY2025 increase from FY2024 in female and non-white recruits, and a decrease, as a share of the total, in white recruits and men. Even under the presumably optimal conditions of a Trump administration, then, white-male recruiting at the US Army is down. The female share of recruits under Hegseth has climbed from 18.1% to 19.7%. The “Caucasian” share declined from 40.5% to 40%, continuing a downward trend from at least 2020, when the share was 52.7%.

Something similar has happened in the “DMV” region: Washington DC, Maryland, Virginia. It is the sixth-largest economic region in the country and naturally sensitive to declines in federal employment. In the DMV, white unemployment has risen faster than black unemployment under the Trump administration, a reversal of the usual relationship. In another departure from the norm, unemployment has concentrated in suburbs; black unemployment in DC itself has actually gone down. Bear in mind that the bulk of the shrinkage in federal unemployment under this administration has been through quitting or taking buyouts. What this suggests is that white unemployment in DMV has grown under Trump, primarily from white workers quitting his government.

The Department of Homeland Security (DHS) is the exception to the pattern of federal agency shrinkage. While DHS itself is down slightly and most of its subagencies have declined, Immigration and Customs Enforcement (ICE) is up by 5,200 for the administration to date, and Customs and Border Protection (CBP) is up 1,746. These are OPM figures; ICE itself claims to have hired 12,000 new officers and agents. Either way, it is the one area of federal employment that bucks the downward trend.

DHS is, of course, also the agency charged with enforcing President Trump’s promised mass-deportation policy. DHS has not released demographic statistics on who is working for ICE or CBP. But in 2023 DHS was 51.7% white (below the national average), 22.8% Hispanic (above the average) and 16.7% black (above the average). The new hires might change this balance. Expensive and sophisticated recruitment efforts, according to an internal ICE document, have been focused on people identified as being near UFC fights, gun shows, and NASCAR races as well as country-music fans, self-identified conservatives, the followers of conservative influencers, and so forth. That does sound like a white-male recruiting effort. Then again, the non-white audiences for NASCAR, UFC fights, and country music have all been growing in recent years, and in some cases the female audiences are growing as well.

It therefore seems more than possible that in the federal government, over which the president has considerable control, the elimination and denunciation of DEI policies has not led to an increase in white-male hiring. Several explanations suggest themselves. The main one is that white men either don’t need or don’t want the jobs. The white male unemployment rate over the first year of this administration has been steady and consistently lower than the unemployment rate for most other groups. That needle does not seem to have moved at all. The standout group for worsening job prospects over the same period has been black Americans, particularly women. At the same time, the labor-force participation rate of immigrant men has been significantly higher (roughly 76% versus 65%) as compared to native-born men, and the unemployment rate slightly lower (3.9 versus 4.3). The demographic group that stands out the most in the available BLS statistics for the first year of the second Trump administration is Hispanic men, more than 79% of whom participate in the labor force, with an unemployment rate of 4.3. When you combine these employment figures with the fact that employment improves with education — people with a bachelor’s degree or above have the highest participation rate (72.6) and lowest (2.8) unemployment rate — the picture that emerges is of a growing Asian presence in the upper reaches, as Asians devote far greater resources to education than any other group (including white Americans), and a more Hispanic middle class as Hispanic education rates and English proficiency steadily improve.

So far, the Trump administration’s war on woke, which has been the leading motif in its remaking of US government agencies, does not seem to have made much of a difference in economic terms for white people, straight people, or men. But it has succeeded in showing the weakness of Congress, state governments, and the rest of the American political system when faced with a ruthless executive willing to use physical force and budgetary power to suppress American political traditions of separation of powers and free political speech. This activity looked as though it was directed at undeserving foreigners and an unlamented wokeness. It was really directed at seizing domestic power, supposedly on behalf of the needs of white men — who so far have very little show for it, at least in economic terms.

Peak Trump? (1 of 4)

This is the first in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The series will look at foreign affairs first, the domestic economy with regard to government second (IRS, SEC, Justice Department, etc.), the domestic political economy looking toward the midterm elections, and finally how the analysis advanced here might affect investment.

Donald Trump did not win his second term as president because of his foreign policy goals or record. His first term was not dominated by foreign affairs and was not seen as notable in those terms one way or the other. His confrontational first-term China policy was generally reckoned a success, at least as a strategic re-orientation, and mostly adopted by the Biden administration. There were other innovative policy initiatives, including the Abraham Accords in the Middle East and the Clean Network campaign for exclusion of Chinese telecommunications technology from international networks (also amplified in the Biden years). The renovation of NAFTA into USMC was not especially consequential, although it introduced a 6-year review, which comes due this year. Otherwise the first Trump administration’s foreign policy was mainly about trying to make major deals — with Kim Jong-un of North Korea, with Vladimir Putin, with Xi Jinping — and substituting economic nationalism for overseas commitments to allies and international institutions. The dealmaking was a failure, including when a deal was actually reached (with China). The turn from internationalism to nationalism, however, was a success in its own terms, and the US’s long march away from alliances and international institutions, beginning in the Clinton administration and continuing (with pauses, as in 2008) ever since, became ingrained practice. But Trump’s second presidential campaign did not run on any of this. The only major foreign-policy campaign promise was to resolve the Ukraine conflict within 24 hours of assuming office.

That, of course, did not happen, and the Ukraine war continues a year later, with Europe struggling to replace military aid stopped under Trump and with US-led diplomacy lacking in results. The most striking thing about Trump foreign policy early in the new administration, as discussed in a number of SIGnal posts, was the doubling down on economic nationalism (using tariff policy) and neo-isolationism (the end of USAID and other international commitments). These moves were radical in themselves; more radical still was the degree to which they took power away from the Republican-dominated Congress and the professional civil service. The lack of effective political opposition to the administration’s moves revealed the shallowness of the American political commitment to internationalism. It also revealed the extraordinary freedom of maneuver now available to the president in foreign affairs.

But President Trump did not have an alternative programmatic use for the powers he had succeeded in acquiring. He lacked a positive ideology. His goals were essentially negative, such as spending less money abroad. Beyond that, there was simply the demonstration of power: threatening to take the Panama Canal (December 2024), then Greenland (January 2025), then Gaza (February); confronting the president of Ukraine (February); harshly criticizing European domestic policies (February, via Vice President Vance); and attacking Iran (June).

At the same time, there was the assertion of a special ability to solve long-standing crises through mediation. This began with a diplomatic intervention in an India-Pakistan confrontation in May, which caused Pakistan to nominate Trump for the Nobel Peace Prize, followed by other instances of what he called ending, or in the Balkans preventing, conflict: Rwanda-Democratic Republic of Congo, Kosovo-Serbia and Israel-Iran (all in June), Thailand-Cambodia (July, and again in December), Egypt-Ethiopia (July), Armenia-Azerbaijan (August), and Gaza (September). None of these conflicts are actually solved. In December the State Department announced that the US Institute of Peace, an independent think tank funded by Congressional appropriation since its founding in the Reagan years, had been renamed the Donald J. Trump United States Institute of Peace to “reflect the greatest dealmaker in our nation’s history.”

What should one make of this seesaw pattern, with aggression from January to June, peacemaking from May to September? The Peace Prize went to María Corina Machado of Venezuela on October 10, 2025; the US’s first strike against a Venezuelan vessel was on September 2, followed by 20 more strikes to November 15. After a pause, the pace picked up in early December, and President Maduro was extracted from Caracas on January 3 after announcing he was interested in peace talks with the US. The US also bombed northern Nigeria at the end of December.

It is obviously tempting to think that the president wanted to show strength abroad from his inauguration to the early summer, but to take on the role of peacemaker in the summer and fall in the hope of being recognized outside his administration as the “greatest dealmaker” for peace. He had stated since 2018 that he thought he deserved the Nobel Peace Prize and reiterated this in February and June of 2025. When he did not receive it, his actions abroad became violent again. He appeared very pleased when Machado gave him her peace-prize medal. But with threats against Cuba, Mexico, Colombia, and again Greenland and Panama, the president seemed to swing back to the belligerence with which his presidency began, in the last two cases with the same targets. The US withdrew its support from some 20 international agencies — the result of a long-delayed State Department review ordered nearly a year ago — and froze the visa-approval process for citizens of more than a third of the countries of the world.

So the pattern of military actions and peacemaking in the administration’s first year does seem to have a pronounced personal component. The president’s weekend letter to Norwegian prime minister Støre confirms this. There is nothing else that links Nigeria, Armenia, Thailand, Iran, Greenland, and so forth. It is a mistake to impose more of a pattern than there is.

However, at some point in the summer or fall the reign of budget director Russell Vought, whose task it was to shrink the US government, seems to have given way to the reign of chief policy advisor Stephen Miller, whose ideas stretch beyond dismantling Diversity Equity and Inclusion (DEI) and Environmental, Social and Governance (ESG) projects and intimidating institutions (corporations, universities, law firms) who once pursued them. Miller has a worldview and a theory. It unites the militarization of anti-immigrant policies with foreign policy, including economic policy. The re-focus of US foreign policy on Latin American drug gangs had been a staple of DC gossip since early in the administration. Now it was clear.  In Miller’s words:

Not long after World War II the West dissolved its empires and colonies and began sending colossal sums of taxpayer-funded aid to these former territories (despite have [sic] already made them far wealthier and more successful). The West opened its borders, a kind of reverse colonization, providing welfare and thus remittances, while extending to these newcomers and their families not only the full franchise but preferential legal and financial treatment over the native citizenry. The neoliberal experiment, at its core, has been a long self-punishment of the places and peoples that built the modern world.

There is something to dispute in almost every word in those sentences, but the point here is that the role of Miller and Vice President Vance appears to be to give some intellectual structure to what might otherwise — given the lack of effective political or public opposition to the concentration of decision-making power in the White House — be simply a personal foreign policy. The criticism of Europe, in the US National Security Strategy, for engaging in its own “civilizational erasure” by not having enough children, sapping the vitality of nations by imposing a European Union on them, and admitting immigrants is part of a larger idea about imperialism and the West. Europe is seen as a betrayer of the West, and the US under Trump as its lone defender. The global economy for perhaps a century is seen as having been an unfair deal for the US and the once-imperial Western powers. The emotional power of this view comes from the sense of internal Western betrayal and of being besieged by the undeserving poor wanting to take what is left of the once splendid West. The chief mode of response, in Miller’s words, must be “strength,” “force,” “power”: “These are the iron laws of the world.”

This is the emergent ideology of the Trump administration with regard to foreign affairs, with ample room allowed for the president’s personal reactions to people and events, such as not winning a famous prize. Trump has never demonstrated a historical sensibility, so it is difficult to know how much he himself believes in this ideology. Nonetheless, it has been foreshadowed for nearly a year and does seem to be the one his administration has. We will look at some of the implications for investors in the conclusion to this series.

Is Venezuela the Final Nail?

By Dee Smith

The Trump Administration’s action in seizing Venezuela’s president — accomplished through an apparently movie-perfect special forces/combined military action — may be the final nail in the coffin of the Liberal International Order (LIO), also called the “rules-based” international order. It is in addition a textbook example of why it is necessary to look beyond the obvious to understand what is going on in almost any situation.

The LIO was partly a product of the desire of Western leaders, after World War II, to create a system of international governance through multi-lateral institutions (like the United Nations) to manage conflict in order to avoid a repeat of war on such a devastating scale, particularly in the emerging age of nuclear weapons. It was at the same time an effort to grow and maintain the economic and military primacy of the United States and of the West in general.

The LIO largely accomplished these goals for 50-odd years, but the system has been teetering for a quarter of a century. A series of events, including the U.S. invasions of Afghanistan and Iraq, and the Russian invasions of Georgia and Ukraine, eroded its reality and credibility. The first two were conducted with some semblance of international cooperation (a “coalition of the willing”). Russia’s actions, and now the American defenestration of the Chavista regime — not to mention various parties’ recent actions in the Middle East and South Asia — have revealed the LIO as no longer fit for purpose. When no one even tries to look as if they are playing by the rules, it is over. Such a structure is unlikely to be revived any time soon in any recognizable form.

Realpolitik, spheres of influence, balance of power, and other elements of the 19th century geopolitical environment have returned with a vengeance. The open lack of interest many governments display toward the multi-lateral institutions and international law — or their purely self-serving invocation of them — complements the normalization of rising elements such as nationalism, isolationism, non-alignment, and identity-based politics. These occur within as well as among nations.

This, of course, means a much more conflictual world. Decisions that were always based on emotional (particularly fear-driven) factors and desires are now being pursued without even the window-dressing of spreading democracy or any other political philosophy. They are now overtly based on self-interest. They always were, to be honest, but the desire to be seen to be playing by the rules of the LIO provided some amelioration of naked self-serving actions.

Consider the difference between the recent U.S. actions in Venezuela and the seizing of Manuel Noriega, the president of Panama, 36 years ago. The latter was cloaked in the democratizing language of liberal interventionism. No such justification is given for last week’s action. It is presented as simply in the national interest of the U.S. This is a harbinger of how power will be projected and justified in the foreseeable future.

We are increasingly becoming an overt “might makes right” world. That is a reality in which mid-sized nations are more fearful of what the largest nations may do to them, but also in which mid-sized nations feel they have more cover in pursuing their designs on smaller bordering nations.

Things are almost never what they seem. There is still some desire for “cover”, but it is primarily for domestic consumption, as with the drug trafficking charges against Maduro. Conventional wisdom (it is notable that “conventional” wisdom can be almost instant!) now says — buttressed by the statements of President Trump — that the Venezuelan operation was really all about oil. But was it? Given the nature of Venezuelan oil (tar sands, at least onshore), and the penetration of the Venezuelan state by China and Russia, it is arguably much more about China. It reflects the desire of the US to weaken China’s presence so close to America, a presence that would make operations in the Caribbean very difficult for the US in the case of a kinetic war with China.

The implications of this return to an older mode of international dealing, and what that means, should not be underestimated. It is well past dawn in the emergence of a much more conflictual day.

We have seen this movie, and we know how it goes. We don’t know how it ends, but it is very hard to find scenarios that end well in a world bristling with nuclear and more recent weaponry (drones, autonomous killer robots, loitering munitions, lasers and other directed-energy weapons, hypersonic directed missiles, cyber conflict, etc.). It is not your grandfather’s warfare.

The dream of the LIO was in part a result of the horror of nuclear weapons. After the fall of the Soviet Union, I heard an old Soviet general comment that his was the last generation of military and political leaders who had actually walked the field of a nuclear explosion. He believed that, as long as his generation was in charge on all sides, the chances of nuclear exchange were very small . . . but that when they were gone, it would become much more likely. Sadly, we are there.

It can be very hard and troubling to attempt to be truly, analytically objective. It means accepting many things you don’t want to believe or don’t want to admit. There are many who cannot accept that the “one brief shining moment” of the LIO is over. But the Zeitgeist has changed, and the 20th century rules are worn beyond repair. The leaders and nations pursuing more aggressive policies are a reflection of that change. And that change is a reflection of loss of faith in the unfulfilled promises of the old order.

Oh, Brave New World.

The US and Internationalism

A deadline has come and quietly gone for the US State Department’s mandated review of American overseas commitments. Presumably a report will be forthcoming soon. SIG’s view is that the report will be mild in substance, for two main reasons: the political force of the Trump administration’s January attack on the “globalist” agenda within the US government and in multilateral organizations has reached a limit; and the lack of pushback against that attack (by allies and foreign partners, the Democratic Party, or the American people) has revealed the lack of any effective pro-globalist or even internationalist lobby. 

Within days of taking office, the Trump administration issued several executive orders withdrawing from certain international bodies (the World Health Organization, Unesco, the UN Office of the High Commissioner for Human Rights) and putting the whole of US commitments to international organizations under review with a report from State due Aug. 4. Some of this was less dramatic than it sounded. Withdrawing from the WHO is a year-long process and funding remains through the end of the fiscal year (Sept. 30). President Trump in his first term also withdrew from the WHO but the clock ran out before it happened and President Biden reversed the order. Unesco withdrawal would not be effective until July 2026. But the White House’s intentions are crystal clear and were reflected in its fiscal-year 2026 proposal to Congress, submitted at the end of May. This is the “National Security, Department of State, and Related Programs” bill, known as the NSRP. The House Appropriations Committee’s markup of it in mid-July was consistent with the president’s priorities and reduced the previous year’s total spend by 22%.

De-funding of international organizations was consistent with the de-funding of the State Department and the elimination of the US Agency for International Development. The handling of the World Trade Organization is interestingly different. President Trump in his first term wanted to withdraw from the WTO as he believed it unfairly favored China. He embraced and escalated the Obama administration’s blocking of appointments to the WTO’s appellate body. (The Biden administration also did nothing to get the appellate-body issue out of deadlock.) But the EU initiated a workaround, the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which effectively could do the work of the old appellate body. By June 2025, when Britain joined, the MPIA included 57 WTO members (out of 166) covering 57.6% of world trade. All of the US’s traditional allies are in the MPIA, including Canada and Mexico, as is China. The most important countries staying outside the MPIA are the US, with about 15% of world trade, and, as a political actor, India. (India has long taken a special interest in global trade negotiations.) The WTO provides a valuable measure of stability and rule of law to international trade. The success of the MPIA in attracting most of the world’s biggest national economies is striking, as it is a very curious and jerry-rigged body.

The second Trump administration, rather than attacking the WTO, has sent one of its leading economic advisors, Jennifer Nordquist, to serve as one of four deputy directors-general. (She has been a counselor to the White House Council of Economic Advisors and was Trump’s appointee in his first administration as US executive director at the World Bank.) Trump has also nominated Joseph Barloon, general counsel for the US Trade Representative in his first administration and a former law partner at Skadden, Arps, as ambassador to the WTO in Geneva. In his confirmation testimony to the Senate, Barloon stressed the importance of not accepting large non-market economies, by which he means China, as equal players at the WTO.

President Trump’s tariff policies have been advanced in both his administrations without much reference to WTO rules and practices. They go against the basic idea of the WTO and before it the General Agreement on Tariffs and Trade (GATT), which began chipping away at tariff barriers in 1947. Nonetheless the WTO, as seen in the strange career of the WPIA, does have a purpose in the estimation of most of the world’s industrialized economies. IT also has a place in the struggle between the US and China. And it cannot be accused of wokeness (as was the case in White House criticism of USAID), “ideological” manipulation of science (WHO), or enmity toward Israel (as is the case with the UN Human Rights Council and other UN bodies facing defunding). Of course in one sense the WTO can certainly be described as “globalist” — theorists of neoliberal globalization often root it in economic policy more than politics — but it is not, in the Trump perspective, ideologically or culturally globalist. It is not part of the America First global culture war. And it serves a purpose for US corporations as well as for every other nation’s corporations.

The WTO (along with the International Telecommunications Union and some others) may simply be the exception that proves the rule: the US is nonetheless withdrawing from and de-funding previous long-term commitments to the institutions of multilateral diplomacy and international governance. But the leisurely pace of State’s mandated review, the compliance of the House Appropriations Committee, the uninterest of Democratic leaders, and the almost complete lack of any public or media attention to this US withdrawal suggest that the administration’s anti-globalist fervor has weakened. It might return in the fall for the UN General Assembly, an occasion Trump has used before to attack globalization and defend economic nationalism. But he might also take the moment to declare victory and seize some credit for the reform and whittling down of the UN, which has been going on for many years now but quickened after January. Either way, the anti-internationalist momentum is likely to wane after UNGA closes shop in October. On the US political scene, it is an issue that no one is motivated to fight over. This will leave the next moves in multilateral diplomacy and governance up to other actors.

The Jobs Conundrum, Part Two

The US jobs report by the Bureau of Labor Statistics for July once again proved economists wrong, or appeared to — the number of jobs added, 73,000, was far below expectations. The numbers for May and June (see SIGnal, “The Jobs Conundrum,” July 6, 2025) were revised downwards by an extraordinary 88%. President Donald Trump reacted by saying the numbers were “politically motivated” and firing the Biden-era head of the BLS, Erika McEntarfer, now temporarily replaced by her Obama-era deputy. (McEntarfer had been confirmed with strong Republican support in January 2024, including from Senator J.D. Vance.) Presidents do not often fire agency heads in quite this fashion and the dismissal dominated headlines. But investors pay attention to facts and the facts about the US job market are not very good.

There is really no reason to think that the BLS was falsifying statistics to create bad news any more than it was falsifying them when the news was good. BLS mid-month estimates are based on a somewhat small sample (560,000 business are surveyed) and as the sample gets more complete after the 12th of the month the statistics change and grow more accurate. Sometimes they go up, sometimes they go down. They don’t often stick right at the mid-month estimate, although the May-June revision was of a steepness not seen since 2021.

SIG’s analysis of July 6, for better or worse, has mostly held up. The jobs market was soft then and still is, although the symptoms in July were different than in June. But unemployment as such has been relatively low and steady. The problems are in job creation. In June, job gains were led by state and local government (overwhelmingly in education), “health care and social assistance,” and “leisure and hospitality.” The downward revisions were accounted for mainly (40%) by revised education-job figures; the other 60% was spread across industries. In July, the gains were led by health care and social assistance, retail, and leisure and hospitality. Manufacturing continued its steady decline.

The Trump administration has never aimed at creating more government jobs, so the large downward revision in public-education employment, which is paid for by taxes, should not, strictly speaking, have drawn such a severe reaction from the White House. But the headlines were negative and they drew a headline-based response. The drama masked the deeper problem that the US economy continues to lose employment for American workers “who makes things with their hands,” as Vance said at the Republican convention last year.  It is gaining jobs for those who look after the elderly and the infirm in an aging population and those who entertain and accommodate people who have money to spend. Overall, it is not growing. The pace of hiring is increasing at the slowest rate in a decade, excluding the pandemic.

 When President Trump was elected last year it was greatly on the back of increased support among working and lower-class constituencies, most distinctively black, Hispanic and Asian voters and younger voters. It was an aspirational demographic that did not think Biden policies were good for the economy that mattered to them. Republican politicians hearing from their constituencies over the summer recess will have to explain why their expectations of the economy have not been met.

The president is likely to blame Federal Reserve chairman Jerome Powell for not lowering rates. Presidents blame the Fed on a regular basis. But the pressure on Powell and others on the board is likely to ratchet up significantly. After all, Powell did say on Wednesday that the job market was sound, and two days later the BLS statistics indicated the opposite. Inflation is still relatively steady. The Fed’s dual mandate is to boost employment and fight inflation. So a rate cut seems more than likely. Powell and many others believe this will fuel inflation. If it does, Trump in the fall will have an economy with many of the problems that the Biden economy had, with an increased decline in manufacturing and very little job creation in other sectors. And the economic renaissance predicted by the administration as a result of government support for AI will not have had enough time to occur, if it occurs at all. The huge increase in Big Tech valuations based on AI expectations could very well be a bubble.

The New AI Action Plan

The Trump administration’s AI action plan got a surprisingly warm welcome this week from US tech-industry and foreign-policy experts. The plan was unusual for this administration, and for the Republican Party, in that it advocates complex government-led initiatives, requiring considerable government funds, to advance political goals in a sector that is overwhelmingly made up of private companies. This is Trumpian industrial policy, and on paper at least it is even more interventionist than Biden-era industrial policies aimed at the tech sector. With its invocation of “renaissance” it is also more optimistic about technological innovation than any administration since Bill Clinton’s: “An industrial revolution, an information revolution, and a renaissance—all at once. This is the potential that AI presents.” In announcing the plan Trump also called AI “pure genius.” SIG’s view is that the AI action plan is both inspiring and well done but that implementing it will be extremely challenging.

Some of the challenges are obvious. The Trump administration has been cutting government bureaucracies, including in tech, yet this plan has numerous policy prescriptions that require government bureaucrats to implement them. The initiatives also require funding, which it is up to Congress to give. While there is general bipartisan support for AI investment, primarily as part of the strategic confrontation with China, the new AI action plan revived the White House’s effort to prevent states from legislating on AI. A similar provision in President Trump’s signature tax bill was defeated in Congress by a crushing majority. The AI action plan’s tactic is to say the federal government will withhold funds from any state that regulates AI in a way that would be “burdensome” or “unduly restrictive to innovation” — as judged by the White House on the advice of federal officials. Congress members represent state and local constituencies, not a national one. That is where their power comes from. Many of their constituents have very grave concerns about AI and expect their representatives to do something about it. When the AI section of the tax bill was rejected by Congress, Republicans, who have been much more for states’ rights (for example on abortion) than Democrats, were overwhelmingly against the president’s proposal.  In several senses, then, the AI action plan is primed for conflict with Congress.

The action plan is also primed for conflict with allies. The AI “dominance” foreshadowed by Vice President Vance in his speech earlier this year in Paris is transformed in the action plan to advocating export of the full American-made “AI stack” to allied countries. An American hardware-and-software suite, deliberately cleansed of any technology produced by “adversary countries” (China), would then become the infrastructure for whatever applications companies in other countries might be able to build. In other words, AI infrastructure would resemble the Internet of 2003: an American platform that others could participate in subject to US rules and US intelligence surveillance, and at a tremendous competitive disadvantage to US companies. This is exactly what other countries want to avoid, especially European countries who are still at the core of the US’s alliance structure. Just as the Trump administration wants US AI to be US-made and reflect US values, Europe wants its own AI sector to do the same — just as China insists on its AI companies reflecting “socialist values.” The action plan rightly stresses that for US AI to have maximum strategic benefits it must be on open rather than closed models and build on alliances rather than going alone. But in a geopolitical environment where allies are considering a tech-driven Buy European Act — and in which US tech giants are setting up “sovereign data clouds” just to keep European customers happy — it is hard to see how exporting the US AI stack in toto (once such a stack exists) will be welcomed abroad. China’s more subtle, and affordable, approach seems more likely to succeed.

The most serious challenge to the administration’s AI action plan is the challenge that faces any government regulation of digital technology: the systems are run by private companies according to market logic, more or less. Silicon Valley’s reaction to the AI action plan has been very positive. It is, after all, a strikingly pro-business and pro-technology plan. The plan’s urging of more government and private spending on the electric grid and data centers will certainly boost industry.

But what if capacity is overbuilt, or the wrong kind? Energy expenditures for AI so far have been fantastically high. If AI is to succeed it will need more energy and more data centers. Nonetheless, AI companies also want to reduce costs, which is why a great deal of investment is going into finding less energy-intensive ways to get AI results. (Data-center companies are also striving to find ways to lower their energy requirements.) The government could end up financing with taxpayer money an infrastructure that won’t be what is needed in five or ten years. Investors should be cautious of extrapolating investment opportunities from the areas that the AI action bill is targeting. The obstacles to the plan are many, and the record of government-led innovation policies is decidedly mixed.

The Jobs Conundrum

The US jobs numbers last week were chaotic, to say the least. The 0.1% drop in unemployment was yet another instance in which economists’ predictions were wrong. It is getting to be a habit, and the Donald Trump administration is reaping the political gains. The last few weeks have seen more and more articles attempting to explain why the predicted catastrophe after the Liberation Day tariffs announcement has not materialized. SIG’s view is that, now that the administration’s giant tax-and-spending bill has passed and members of Congress return to their constituencies for the summer recess, the real political work will concern jobs. So it is worth looking deeper into the new numbers.

Jobs in June increased by 147,000. However, the workforce itself shrank by more than that: The number of people characterized by the Bureau of Labor Statistics as “not in the labor force,” and therefore not counted as “unemployed,” grew by 490,000. The unemployment rate went down not just because jobs were added but also because the size of the workforce decreased. 

In sectoral terms, the biggest job adds (73,000) were in government. The biggest source of those jobs was growth in the public education sector, which is mainly K-12 schools. Of the 47,000 state-government jobs gained, 40,000 were in education. Of the 33,000 jobs added in local government, 23,000 were in education. Federal government employment was down by 7,000 for June and has dropped by 69,000 since the beginning of the Trump administration, in line with the president’s commitment to shrink government.

The increase in state and local education jobs should not be a surprise. The 2008 recession hit those sectors very hard. They recovered at a much slower rate than the private sector. When Covid hit, their subsequent recovery, compared to that of the private sector, was even worse. Massive federal aid got schools through the pandemic but it was always going to dry up and eventually did. States, looking to the longer term, realized they needed to increase spending. Populous states like Texas, California, and New York have recently broken records for education spending. Much of it goes into teacher salaries, which have been increasing in response to a chronic teacher shortage. (Credentialing in many states has also become much more lenient to attract more teachers.) In short, the state and local public education sector was overdue for a boost, got it, and jobs have been created.

The other major sectors driving job gains in June were “health care and social assistance” (58,600) and “leisure and hospitality” (20,000).  “Social assistance,” in the world of the Bureau of Labor Statistics, is not governmental but includes services like child care, vocational rehabilitation for the disabled, community food banks, and emergency services. The remaining major gains were in construction (15,000) and transportation/warehousing (7,500).

Overall, the private sector did not do as well as the public sector. Private payrolls were up by 74,000, the weakest growth since last October. An ADP Research study earlier in the week identified numerous indicators of weakening in the private labor market. Job losses in June were concentrated in mining and logging (down 2,000), wholesale trade (down 6,600), manufacturing (7,000), and professional and business services (7,000).

The problem, of course, is that the Trump administration’s goal has been to reduce government and favor the private sector, while the reality of the labor market so far is going in the opposite direction. Meanwhile, CEOs were spreading the word that AI would eliminate jobs on a grand scale. Ford’s Jim Farley thought that AI would “replace literally half of all white-collar workers in the U.S.” Of course, AI could also eliminate jobs in the public sector, including education. But the impetus for the current, very high levels of investment in AI is to increase productivity by making private-sector workers more efficient, not by hiring more of them. Overall, then, AI could well shift the balance of employment in the US economy further toward government.

It is possible that reducing taxes, as the new bill does, on upper-income groups could increase consumer demand, probably in the leisure category, and even free up capital for productive investment. It is also possible that a tariff program could result in increased investment in American manufacturing. However, neither of those results is going to be quick. In the meantime, Congress members will meet their constituencies as private-sector employment weakens and the federal government’s willingness or ability (given extraordinary debt levels) to solve problems, much less provide jobs, is weakening as well. Whether President Trump’s economics will work out in the end might not matter, because the end will be after the midterms, which in political terms could be too late.

Déjà vu All Over Again

By Dee Smith

With his entry into the Israel-Iran war, Donald Trump seems to have gone over to neoconservatism, even invoking the goal of regime change, an old neocon favorite. It remains to be seen at this writing what will happen to the cease-fire he has imposed, but the interesting thing from a policy standpoint is how much this is both in accordance with — and violates — legacy patterns of US foreign policy.

Many Iranians outside Iran are pleased at Trump’s decision, even as they are desperately concerned about their families who remain there. Anne Applebaum cites an article from an anonymous Iranian source published last weekend in Persuasion:

knowing that the men who’ve held us hostage for forty-six years, who’ve ransacked our country, raped and killed our daughters and executed our men for asking for their basic human rights, are finally getting what they deserve—that brings me peace.

That view of the recent American action comes very close a classic element of the liberal international order in its later form: the “Responsibility to Protect” or R2P. Under this doctrine, the international community has a responsibility to intervene inside states that do not protect their populations from atrocities such as war crimes or genocide.

All of this is to say — with apologies to Mark Twain — that reports of the death of neoconservatism and of the liberal international order have been greatly exaggerated. They are gone, but also not gone. They are there, but so radically mutating they are no longer themselves.

That is characteristic of our entire world today. We are living in a time in which ideologies are both more important than ever, and the varieties of thinking and expressing ideologies are more confused and at odds with one another than ever, and in which many people are not sure whether they actually believe what they claim to believe … or want to believe.

This multi-directional confusion is characteristic of most elements of global society and culture: Multiple ideas, trends, and styles from the past are reinvoked and mixed together, often haphazardly. This extends to culture, both popular and “elevated.” It has been said that there is no direction in fashion today: you can wear whatever you want. This is also true in the visual arts. And “serious” or classical music currently includes almost any style—you can compose like Bach, Schumann, Ravel, Prokofiev, Stockhausen, or Glass and be taken seriously, and you can even mix those up in the same piece and get away with it. Beyond that, the lines dividing classical and popular music are dissolving. And popular music has 1001 idioms, genres, and styles, not to mention the almost uncountable “mash-ups.” Really, anything goes.

That is also true in philosophy and even in science, as new and resuscitated interpretations of new and old discoveries create visions and theories that are directly at odds with one another — in areas ranging from particle physics to vaccination science to the study of the nature of consciousness (which is of vital interest to AI) — all claiming to be supported by evidence and each taken seriously by knowledgeable people. It is certainly true in politics, ethics, behavior, and mores. There is simply no overall direction, and certainly no center. That is always true to a degree, but it is much, much more pronounced now.

It is all of a piece only by virtue of being, as Elvis Presley said, “all shook up.”

Some see this as a form of decadence. But it also represents a flailing about to try to find something that works … anything … in the radically divergent situations we face. We seem only to know how to look inside the old boxes we have, and they no longer contain anything fit for purpose. We are all, fearfully, practicing the politics of nostalgia. But the past does not work today, our current systems and ideas do not work, and we don’t see where a future lies that might work. We find ourselves at sea with no life-raft we can grab onto.

Sometimes this is called a “horizon problem” — meaning that the solution is over a horizon beyond which we cannot see from our present vantage point. During the energy crisis of 1979, President Jimmy Carter exaggerated when said we were in a civilizational crisis of confidence. That is no exaggeration today.

In Hemingway’s novel The Sun Also Rises, Mike Campbell answers the question of how he went bankrupt: “Two ways: Gradually, then suddenly.” This is how major change often happens. We would be wise to recall how quickly the Soviet Union fell in December 1991. It had seemed robust, threatening, and indeed almost impervious less than 5 years earlier, and looked reasonably secure even a few months before. But the decay had in fact been eating away at the system for decades.

The old Chinese curse, now repeated with tiresome regularity because it is so apropos to our day, says “may you live in interesting times.” We are indeed there.

Where will our situation lead? And how do we navigate it? These are among the most urgent questions for all of us today, and they extend across all the domains of life. If you have little idea where the future is heading, and you can’t rely on the elements you could in the past, then how do you prepare for it? How, for example, do you ensure the well-being of your family? How does an investor manage, let along hedge, a portfolio in circumstances like this? Aside from intensive vigilance, the ability and willingness to move quickly, and hope, it is very hard to answer these questions.

Writing in another tumultuous time at the end of the 17th century, the English poet John Dryden closed his Secular Masque with:

All, all of a piece throughout;

Thy chase had a beast in view;

Thy wars brought nothing about;

Thy lovers were all untrue.

'Tis well an old age is out,

And time to begin a new.

Investment and Race

Although US President Donald Trump once took some credit for popularizing Juneteenth (June 19), an official national holiday marking the freedom of enslaved Americans, celebrations this week were muted and in some cases canceled. Trump himself did not mention the holiday. Some US businesses also stepped back from it, although not with the speed with which they have moved away from DEI (diversity, equity, and inclusion) programs, which have been explicitly targeted by the Trump administration (see Signal, “The Rollback,” Feb. 28, 2025). It is not hard to tie this deprecation of Juneteenth to the argument that a form of white nationalism is backed by the White House. SIG’s view, however, is that the reality is more complicated, more politically opportunistic, and of more significance to American business.

The racial politics of the current moment seem to pivot around class and social mobility as much as physical appearance. It should be recalled that DEI efforts were losing popularity before President Trump took office, notably among nonwhite Americans. In the brief period from February 2023 to October 2024 (before Trump’s victory), according to Pew Research, Asian-American support for DEI programs at work went from 72% to 57%, while those with a neutral view rose from 18% to 28%, meaning that those Asian Americans who either opposed DEI or preferred not to venture an opinion had reached 43%. Unfortunately, Pew’s summary of the 2024 research did not highlight the same figures for Hispanic Americans, but in its February 2023 survey Hispanic support for DEI had been significantly weaker than Asian support. Given that the 2024 survey also found a broad decline across groups in support for DEI, it does seem unlikely that Hispanic support for it would have gone up while Asian support plummeted.

Dwindling non-white support for DEI might be related to views on the systemic or otherwise nature of racism in American society. The American Communities Project researches American views on a variety of topics based on a 15-part typology of communities, from Aging Farmlands (91% white, strongly Republican, with low unemployment and low education) to Hispanic Centers (more than 50% Hispanic, about evenly split between the two political parties, with low voter turnout and twice the national average of people lacking health insurance) to College Towns (younger, 78% white, 6% black, mildly Democratic) to the African American South (more than 40% black, 3% Hispanic, strongly but not overwhelmingly Democratic). The ACP also includes communities like Mormons (“LDS Enclaves”), Native American Lands, and Military Posts that rarely surface in statistical assessments of the national community. One can find fault with any of these categories but they have the virtue of complicating the straitjacket of race, income, and education.

One ACP question has been to ask whether you agree or disagree with the statement, “Racism is built into the American economy, government, and educational system.” Just 48% in Hispanic Centers agreed with that statement, a tie with Native American Lands. The lowest affirmative share was in Aging Farmlands (38%), the highest in the African American South and Big Cities (both 58%), College Towns (55%), Urban Suburbs (54%), and Military Posts (52%). The perception of systemic racism was highest in areas with large black populations — the US military is nearly twice as black as the national population — and large shares of better-off and better-educated Americans, the last two categories being disproportionately white although also disproportionately Asian. (Asian households are better educated and wealthier than any other racial or ethnic group in the US.) Unfortunately the ACP does not have an Asian community among the 15.

One can reach any number of conclusions from these surveys, including that white Americans do perceive systemic racism, and more so as they climb the social ladder — although there is also a clear partisan divide on how significant it is. The relationship to social mobility does seem relatively clear. In the ACP studies, Hispanic Centers were the community least likely (37%) to feel that “it is increasingly hard for someone like me to get ahead in America” and also the least likely of the 15 communities to agree (61%) that the US is in decline. In both cases, the community at the opposite end of the optimism spectrum was Evangelical Hubs (90% white, with income and education levels below the national averages, poor health care, and low voter turnout). This is the community that least sees itself as upwardly mobile.

In presidential races, the Republican coalition has, of course, become steadily more Asian, Hispanic, and black. (Asian voters in 2024 were 9% of the Republican coalition.) The Democratic candidates’ Asian support dropped from 74% to 61% from 2012 to 2024 nationally and 70% to 57% in 2024 battleground states. About the same pattern held nationally and in the 2024 battleground states for black and Hispanic voters. In a highly partisan political landscape, nonwhite voters, by leaving the Democratic party, have become a crucial swing vote.

If social mobility is a key factor, then these voting patterns might not be much affected by what happens with either DEI or Juneteenth. Republican politicians have consistently stressed that the United States is a land of opportunity more than their Democratic counterparts have. Hispanics and Asians disproportionately reach for that opportunity, far more than their white counterparts. The number of Hispanic-owned businesses grew 44% from 2018 to 2023 while the number of white-owned businesses slightly declined. Meanwhile, Asians, despite their lower numbers, owned more US businesses than Hispanics or African Americans, and had the largest estimated receipts ($1.2 trillion in 2022, the most recent year for which the census has public data).

At the same time, non-white businesses often do find it harder to attract investment than their white counterparts. A Stanford study argued that if “Latino-owned businesses had the same average revenue as white-owned businesses, it would add $1.1 trillion to the U.S. economy.” In short, there is an under-exploited investment opportunity in the non-white parts of the US economy. The Republican party, at times despite itself, discovered this opportunity in political terms. Investors could discover it in business terms as well.

The Rollback

Two tripartite acronyms that came to represent some of the most important policy packages of the post-Cold War West — ESG (Environment, Social, Governance) and DEI (Diversity, Equity, and Inclusion) — are becoming obsolete at an impressive speed. President Trump’s opposition to both was clearly articulated during his campaign. It was part of his electoral appeal to a variety of American constituencies. He has now used his powers to roll them back. European officials are rushing to keep up. Corporates generally welcome all this, although they refrain from saying so publicly. ESG and DEI both added costs. Their repeal is part of the expected package of deregulation and tax cuts that was the foundation for corporate and investor support of Trump’s second candidacy. But a new world after ESG and DEI might not be as commercially liberated as many are anticipating.

The Europeans tend to draw a distinction between the US initiatives, which they see as driven by “ideology,” and their own, which they characterize as driven by a need to compete with US companies that will henceforth be operating by a different set of rules that entails reduced costs. Since, in the European view, the initial impetus comes from US ideology, European governments and companies are rendered blameless as they are only reacting to the US abandonment of what were, until recently, held to be common Western values. For people whose environment, as a result of these changes, is poisoned, or whose workers are returned to labor conditions describable as “modern slavery,” this will seem like a very fine distinction. If one’s values can be overturned in a matter of weeks by a fear of future market pressures, then those values cannot be reckoned to be very strong.

Will abandoning them have the desired effects? Since the US-European playing field is, by virtue of this shared rollback, being not so much leveled as lowered, the strictly economic effects, in competitive terms, are not likely to be impressive. If all firms save the same costs in the same way, then the benefit to any individual firm is not great. What this common downward leveling will do, however, is reduce the barriers to competition for companies from economies that did not much subscribe to Western-led DEI and ESG initiatives in the first place: China, Russia, much of Southeast Asia, parts of Eastern Europe and Latin America. The dominant Western economies, fixated on competition with each other, are abandoning policy levers that, given the importance of their consumer markets, would have given them a type of comparative advantage. Some would say that was what made those levers politically viable in the first place.

This is especially the case with ESG. The DEI situation is interestingly different. One reason the US economy is distinct from those in industrialized Europe and East Asia is that the US has always been a multi-racial and multi-ethnic society dependent on immigration for growth. While DEI as such is quite new, the inclusion of diverse peoples with at least a horizon of equity to aim for — expressed in ideas of Americanization, assimilation, the melting pot, color-blindness, and market-based opportunity, among others — has been a feature of the US from its beginnings, even if it has always been extremely contested. European and East Asian societies, by contrast, have been constructed much more around a central ethnos, the preservation and advancement of which have been seen as constituting much of the purpose of the nation. While there are many, many exceptions to this, the European and East Asian varieties of DEI really have to do with immigration (and gender equality). They are features of just the last few decades. In the US, they are part of a long-established social contract.

Perhaps the distinction is not that important. Ultimately, in both cases, the central question is the supply of labor and its price. Neither the white population in the US nor the Korean or Japanese or German or Dutch labor forces are growing. Robotics and AI and the suite of labor-saving (or job-replacing) technologies may manage to reduce the drag that this lack of population growth has on national economies. Technological protectionism (and other kinds) might also increase employment of skilled nationals. But the demographic and other counter-trends are very strong. The US and other powerful states are expecting capital to be more patriotic, which might create some domestic jobs but could also reduce the returns to capital that were had by outsourcing the rich world’s working class. Meanwhile globalization gave many less-developed economies enough of a middle class to increase domestic demand for domestic production.

The US is, as ever, an outlier. Unemployment is and has been low, unlike in every other major economy. And DEI in the US, unlike in other countries, does not have principally to do with immigration but with the relationship between white and non-white. So does the anti-DEI wave. The Department of Education took the Supreme Court’s ruling against using race as a factor in elite college admissions and decided that it applied, or should apply, to every school of whatever kind in the United States that takes federal funds. The Supreme Court is encouraging white Americans to equate their experiences of racial discrimination with those suffered by non-whites. Missouri’s attorney general is suing Starbucks on charges of discriminating against white men. The secretary of defense, Peter Hegseth, fired senior Pentagon officials he seems to have thought were DEI hires, on a gender as well as racial basis.

All of these moves represent a dramatic change in US social relations, one whose implications can only be guessed at. The unemployment rate for white men is at 3.1 percent. (Its lowest previous rate in memory was 1.7, in December 1968.) White unemployment rates run slightly higher than those for Asians but significantly below those for other groups. If there has been discrimination against white men, and if immigration is held at bay, then employment of white American men is likely to go up at the expense of other groups — perhaps not Asians? — whose unemployment rates are already higher. Over time, the US might return to having an unusually empowered white male working class, recreating to some degree the era when trade unionism, which discriminated heavily in favor of white men, was at its peak and income inequality at its lowest. But it is hard to imagine the nonwhite working class, which is today (unlike in the 1950s and 1960s) the majority of the working class, going along with such a social order. Nor is the unemployed part of the white population likely to jump at jobs that it currently tends not to accept. Corporates and investors have not liked DEI and are abandoning it with impressive alacrity, but the post-DEI world, like the post-ESG world, may not be quite as commercially successful as expected.

The Importance of Ideology

Humans seek patterns in order to stabilize their relationship to their surroundings. The first month of Donald Trump’s second term has been rich in new policies, staff reductions, bureaucratic reorganizations, and diplomatic initiatives. The patterns have not been so easy to identify, though. So people take inadequate information and construct what patterns they can with it — patterns that make sense to them, but might not be related to what the prime actor, in this case the Trump administration, thinks it is doing.

For example, officials of the Department of Government Efficiency (DOGE) are extracting datasets from a number of government agencies; Elon Musk seems to be running DOGE; Elon Musk has an AI company, xAI; so maybe DOGE is extracting data to feed xAI? That is a pattern, but is it in any way truthful? Similarly, the president’s Ukraine policy is seen by some as part of a larger strategy to lure Russia away from its partnership with China; others see the same policy as encouraging aggressive states to acquire territory by force, which could spur both Russia and China to greater belligerence, contrary to US interests, while not harming their current partnership at all. These are opposite patterns, both mildly supported by current information but still fundamentally speculative. This kind of chaos does not render decision-making easy, for investors or anyone else.

SIG’s view is that there is an identifiable pattern to the White House’s initiatives. The core intention is to counter what the Center for Renewing America calls the censorship-industrial complex. One example of this complex identified by the center is the National Endowment for Democracy, which they say is “a ‘quasi-independent’ non-governmental organization (NGO) that operates as a front for the State Department and Central Intelligence Agency (CIA) [and] serves as the tip of the proverbial iceberg for a sprawling censorship industrial complex.” The sprawl, as envisioned by the center in a report dated 7 February 2025, reaches across federal agencies, universities, and corporations, particularly any corporations that deal in information, creating a “global nexus of governmental, non-profit, and private sector entities that work together to monitor and stifle speech that threatens the elite political and ideological consensus. These entities include agencies like the Cybersecurity and Infrastructure Security Agency (CISA), tech giants like Meta or Twitter, higher-education affiliated centers like the Stanford Internet Observatory, and non-profits such as Meedan. These organizations are utilizing the strands of institutional power to establish the political, policy, and moral predicate to justify the policing of free expression in a direct threat to foundational God-given rights recognized in the U.S. Constitution.”

The center sees this process as decades-long, originating in American disinformation abroad by intelligence and security agencies which eventually enabled these agencies to “cultivate an ecosystem — through partnerships with NGOs and the private sector — that quickly took root at the domestic level” (emphasis in original). The center concludes that “it remains to be seen whether or not it is even possible to fully defang the progressive orthodoxy in these agencies without dismantling them and starting over. It may very well be the case that there is no other choice but to take it all down.” 

The Center for Renewing America is a vigorous non-governmental organization founded by Russell Vought in January 2021. Vought served in the first Trump administration as deputy director of the Office of Management and Budget, then as its director. While Trump was out of office, Vought and the center published (December 2022) a budget plan for Congress called “A Commitment to End Woke and Weaponized Government.” Vought and the center played a major role in the Heritage Foundation’s Project 2025, an effort to construct an agenda for a second Trump presidency. Vought was policy director for the Republican National Committee’s platform committee during the successful 2024 campaign. (The author of the February 2025 report quoted above, CRA senior advisor Wade Miller, was political director for Texas Senator Ted Cruz’s 2018 campaign then chief of staff for Texas Congressman Chip Roy, himself a former Cruz chief of staff.) Vought became budget director for the current administration on 7 February as well as acting administrator for the Consumer Financial Protection Bureau. The center published a brief on 10 February urging that the consumer bureau be closed.

The point here is not that the Center for Renewing America and Russell Vought are influential in the Trump administration, although they clearly are. (The US budget director is not a trivial position. The center’s policy papers on Ukraine, the State Department, and immigration, among other topics, anticipated as well as anything the policies that the Trump administration is now adopting.) The point rather is that the worldview expressed in Wade Miller’s article quoted above, which stresses a long-standing US government conspiracy with NGOs and tech corporations to suppress conservative speech, appears to be an animating force within the administration. Vought, Miller, and the center are not the originators of this worldview, they are simply articulating it.

Seeing Trump administration policies through this lens helps to make sense of them. For example, Vice President Vance’s speech at the annual Munich security conference last week baffled many observers with its exclusive emphasis on threats to freedom of speech in Europe. “The organizers of this very conference,” Vance said, “have banned lawmakers representing populist parties on both the left and the right from participating in these conversations….[T]o many of us on the other side of the Atlantic, it looks more and more like old, entrenched interests hiding behind ugly, Soviet-era words like ‘misinformation’ and ‘disinformation,’ who simply don’t like the idea that somebody with an alternative viewpoint might express a different opinion.”

Reluctant to understand Vance’s words as meaning more or less what they said, commentators sought other explanatory patterns, such as a White House effort to further US dominance of European technology markets. A similar disconnect applied to criticisms of the administration’s dismantling of USAID and the State Department’s foreign-aid infrastructure, of its rejection of environmental legislation to combat climate change, and its Ukraine policy. But claims that USAID was pursuing a woke agenda or that pre-Trump Ukraine policy involved “spending American blood and treasure to ensure the continuation of a liberal and feminist social revolution in the furthest corners of Europe,” regardless of their accuracy, were genuinely felt.

Two notable recent failures of political-risk analysis were the underestimation of Trump’s “economic nationalism” in his first term and of Xi Jinping’s commitment to Communist Party control of the private sector. In both cases, ideology was discounted by an analytical confidence in constraints that reality was expected to impose on ideological ambition. Certainly those constraints existed, but their ability to prevail was wildly overestimated. Something similar is happening today with the Trump administration. People look to oligarchic power grabs or oil-company influence or Russian disinformation campaigns — patterns that make sense to them — rather than to the stated beliefs of powerful actors.

Nonetheless those beliefs are real. Looking for other, supposedly more sensible explanations can lead to poor analysis.   

The Change is Already Here

The commentary on how Donald Trump’s presidency might transform global reality after his inauguration on Monday has been boundless. So has commentary in individual countries on what Trump might mean for them. But as commentators anticipate the Trump future they often miss how much the furniture has already been moved, before Trump’s actual ascension to office. Trump the negotiator may value his own unpredictability, but much of the reaction to his second presidency is baked in. He is not a novelty and neither, from a foreign perspective, is the America that decided to re-elect him.  

The 16 years of Obama-Trump-Biden isn’t quite a generation, but those are usually reckoned at 20-30 years, so 4 more years of Trump just about gets there. The 16 years of Bill Clinton and George W. Bush formed a fairly coherent mini-era of strong growth (ending with the 2008 collapse) and post-Cold War openness (ending with terrorist action and reaction, and the emergence of the China-US relationship as the core of geopolitics and geoeconomics). The past 16 years have been much more about the re-shaping, and relative diminution, of the West and the institutions it built and dominated; the rise of leaderless regions to economic prominence, utterly dependent on globalized markets but without the power or ambition to decisively shape them (Southeast Asia and the Gulf, in particular, but also Central/Eastern Europe, Africa and, perhaps, Latin America, as well as not-so-leaderless India); and the none too successful efforts of the US and China to assert dominance. The resulting “order” has been described as multi-polar, but there is a noticeable shortage of effective poles. 

It is this second era that was solidified by the defeat of Biden-Harris and the victory of Trump. There were once expectations (or hopes) among some that the first Trump administration was an anomaly and Biden would effect a restoration of sorts, pushing the US and the world order it dominated back toward a Clinton-Bush-Obama normalcy. Such expectations underestimated a number of deeper transformations after 2008, notably technological transformations but also changes in the US itself as well as the endurance of Xi Jinping’s version of China. Both Xi’s China and Trump’s US were often seen as exceptions to post-Cold War rules of globalization and the spread of liberal democracy and peace. That view finally expired last November. 

The speed with which businesses have adjusted to Trump reflects an acceptance of realities that predated the last election cycle.  So too do the policies of foreign actors. Many of these have been discussed in previous SIGnal posts, most recently on the Gulf. Japan is reluctantly adjusting its relationship with China. Europe is coming to accept that the sweeping and radical proposals of Enrico Letta and Mario Draghi, both commissioned by the EU, may actually have to be followed if the EU is to last. The heads of Europe’s telecommunications champions, Nokia and Ericsson, have recently pressed, along with SAP, for the Italians’ proposals to be implemented. These three tech giants do not know what Trump’s tech policies will be. They are simply acknowledging that the landscape has permanently changed.

In developed-world national politics, the dominant mode is one of turbulence (Canada, Britain, Taiwan, Germany, the Netherlands, France) sometimes veering into chaos (South Korea). Governments struggle to manage deep transformations in technology, demographics, climate, geopolitics, and geoeconomics. What they are being compelled to accept is that the United States is no longer willing or able to back even an imperfect ordering of world power along lines that will benefit all. Despite some false dawns along the way, that trend began sometime in the younger Bush’s presidency. What has changed is the sense of its permanence.

All of this has occurred before the inauguration. The new president and Congress may believe that they can control this process but the major work has already been done.

Into a New Era

A staffer in Donald Trump’s first administration once said that Trump sees unpredictability as one of his great strengths. Trump’s stern dismissal of the Heritage Foundation’s 900-page “Project 2025” blueprint during the campaign was one example of how a person would act if he did not want you to know his next move. Now that Trump is president-elect, businesspeople are understandably eager to find some predictability in the near future. For lack of any better option, “Project 2025” is again being looked at for clues following some statements from pro-Trump commentators that it is, after all, the real blueprint for the next four years.

The most interesting of these commentators is Steve Bannon. Bannon is doing now what he did in 2016: forcefully pushing an agenda and hoping people will believe it is Trump’s as well as Bannon’s. So it is worth remembering what happened with Bannon in the first administration: He rose quickly, he flourished briefly (7 months), and then he tumbled very far. For a leader who cherishes his own unknowableness, it is useful to have underlings claiming that they know his mind and generating ideas accordingly, but such people and ideas can be abandoned — indeed they must be abandoned occasionally, or the president’s power of unknowability will be lost. Trump has made a mark in a long and dramatic life by what he calls “weaving.” Having secured an extraordinary victory by such methods, he is unlikely to switch approaches now. Apart from his core belief in economic nationalism, Trump was a policy freelancer in his first administration. His own officials simply had to try to keep up. There is little reason to suppose this term will be different, at least until Trump becomes a lame duck and the Republican party, with a strong position in Congress and the justice system, begins to define its post-Trump identity.

In looking ahead to that day, several features of the recent election stand out. The first is that the hard-core view of malevolent liberal hegemony has been proved wrong. The electoral system worked perfectly well. There was no “steal.” There was no fraud. Conservative voices were not suppressed. Silicon Valley liberals did not control the information space to their advantage. None of the distinctively MAGA fears about the political game being rigged seem to have much, if any, basis in reality. Americans voted for Trump in the normal way, and then he won.

The prominent Soviet Communist official Georgi Arbatov famously said to a group of scientists in California in 1988, when he was a top advisor to Mikhail Gorbachev, that “our major secret weapon is to deprive you of an enemy.” Arbatov explained: “So much was built out of this role of the enemy. Your foreign policy, quite a bit of your economy, even your feelings about your country. To have a really good empire, you have to have a really evil empire.” Today, the election results have shown that the MAGA view of its enemies and their power was overblown. Where will the movement be without it?  

A second striking feature of the election was the shattering of the liberal view that voters of color were natural Democrats, if not natural liberals. As SIGnal readers know, this has been some time coming (see, e.g., “Vance Notice,” July 19, 2024). Trump appealed in 2016 to both white and non-white working-class voters; this year, he simply built on that appeal. The Democratic assumption seems to have been that people would vote their race rather than their class. That assumption was wrong. Key states like Texas and Michigan went for Trump not least on the strength of non-white votes.

A third and related feature was the central role of the Hispanic Republican vote. No doubt there are many reasons for Hispanic Republicanism, but surely one is that most Hispanic voters are on or near the front lines of economic competition with immigrants. Working-class opposition to immigration has a long history in the United States. Immigrants undermine the wage-bargaining power of the existing lower class. From a lower-class point of view, the first Trump administration, pre-Covid, was economically a good one. Post-Covid, the Biden administration presided over an economy that returned unemployment to the same low rate (~3.6%) that was achieved by the Trump presidency in 2019. However, it did so against a background of price inflation, which made wage gains seem precarious. Immigration threatened to make that worse. It is no surprise that so many working-class voters, regardless of their ethnic background, embraced a candidate volubly opposed to immigration, especially illegal immigration.

The irony is that the Republican party, which was once revived by its rather frank appeal (the “Southern strategy” of Barry Goldwater and then Richard Nixon) to white Americans whose social position seemed to be threatened by the civil rights movement, is now a party backed by an electorally crucial bloc of nonwhite voters whose politics are evidently driven much more by class than by race.

How will the Trump administration and the Republicans manage government, now that their dark view of American democracy (and liberal power) has been proved wrong and their electoral base has achieved a diversity, and a rootedness in the working class, unimaginable in the days of Goldwater, Nixon, and indeed Reagan? If a new enemy is needed, in Arbatov’s sense, it is unlikely to be a domestic racial one. A revival of the Southern Strategy seems highly unlikely. It would be self-destructive. “Trump’s America,” Kelefa Sanneh wrote in the exceedingly liberal New Yorker, “is a place that is more polarized by education than it used to be and less polarized by whiteness and non-whiteness—by race, broadly understood. This switch, if it holds, may be bad for Democrats, at least in the short term. But if one party no longer represents whiteness so specifically, isn’t that good for America?”

The Choices of a Generation

One hesitates to predict anything about the US presidential election save that it will occur and then someone will (eventually) take office. What happens afterward is hard to know. Both campaigns have laid out their policy plans, but those greatly depend for their implementation on Congressional election results and the subsequent priorities. Neither candidate will be able to do just what he or she wants when president.

However, there are a few things that might be counted on. In the case of Donald Trump, the odds are extremely high that his prospective administration will have just one term. The 22nd amendment to the Constitution holds that “no person shall be elected to the office of the President more than twice.” Beyond that, he will be the oldest person to have held the office — 7 months older than Biden in the current term. Biden himself has broken Ronald Reagan’s record by 5 years. Reagan was 77 when he left office. Biden will be 82, as would Trump (with an additional 7 months).

What effects might this have? We can assume that Democrats will be devoting themselves to crushing the life out of the Trump White House as best they can. Just as importantly, perhaps more, the Republican Congressional delegation after the inauguration on January 20 will be looking to possible transformative legislation between then and the spring. After the August recess, members will be focused on the midterm elections in 2026. What role Trump will play in the midterms, and whether he will be a boon or a liability, is impossible to foresee, but it is certain that after the midterms he will be a lame-duck president as well as the oldest in history.

Trump’s mesmeric, sometimes brutal hold on the Republican party has lent it vitality but, given the highly personalized nature of Trumpism, cannot also lend the party stamina. The GOP will need to find new ways to configure itself and explain itself as Trump’s power fades. It seems unlikely that the party will be able to continue to press “Make America Great Again” as it will have already had two terms to make America as great as it can. It cannot remain Trump’s party, but it cannot run against itself either. Will it become still more of a states’ rights party, as in its response to the repeal of Roe v. Wade? Will it become more culturally diverse, as its steady growth among non-white voters since 2016 would suggest? Will it continue to be protectionist?

The case of Kamala Harris is very different. She turned 60 this month and is impressively vigorous. (Tim Walz is just 7 months older.) At the same time, her command over the Democratic party is not clear. Certainly the party leaders and the rank and file seem very happy that she is the candidate. The salvage operation after Biden’s debate debacle was relatively swift, ruthless and well executed. The Harris campaign’s discipline was there from the beginning and has held. At the same time, if Harris wins it will be a victory for the party at least as much as for her. The octogenarian knife-fighting that brought down Biden — Nancy Pelosi turned 84 shortly before making the president face reality in July — led to Harris’s candidacy mainly because there was no way it could not. The party had neither the time nor the internal coherence to pass successfully through an open convention or some similar process. But it did have the discipline not only to line up behind Harris but to bend itself toward ensuring she campaigned effectively. Harris had not campaigned well in 2020. No doubt she learned from that experience. Yet the speed and thoroughness of the Democratic effort are owed to the party first of all.

For that reason it is especially important to look at what the Democratic campaign post-Biden has and has not been able to achieve. Perhaps the most striking result is that the Harris campaign has improved support among white voters without a college education, lack of a college degree being the somewhat misleading proxy for “working class.” The party has long known of its weakness among less-educated white voters, particularly women. (A massive effort to raise the party’s traditionally poor scores among white women without college degrees began in 2023.) The Harris campaign has managed to do something about it, however modest. Equally striking is that the Harris campaign has not done so well among nonwhite voters. The Harris campaign has had as little as half the percentages of nonwhite voter groups as Biden had against Trump in 2020. Harris has, however, polled strongly among the college educated, who are 35 percent of the electorate but 40 percent of likely voters. College-educated voters are disproportionately white and disproportionately wealthy.

So the Harris campaign, whether she wins or not, will likely mark a turn in the party’s understanding of the relationship between biology and political destiny. The nonwhite presidential candidate has helped with white voters while trailing her white predecessor among nonwhites. This is more or less the reverse of what was expected. Will the post-election Democratic party lean further toward racial diversity and class exclusiveness? Will it de-emphasize some forms of public identity? Will it emphasize policies that increase its support among the less educated? Would a President Harris simply preside over these choices, or will she shape them?

After next Tuesday, a victorious Republican party would begin the final chapter of Trumpism and the first chapter of its post-Trump future. A victorious Democratic party might or might not begin its Harris years. Both parties will be going through exceedingly complex post-boomer generational shifts that are already under way. Coverage of the presidential race has tended to frame Nov. 5 as the beginning of one or another Armageddon, but it is more likely to mark the intensification of generational change that will transform the American political landscape.