What will an authoritarian regime under Trump look like?

Donald Trump's second term in office has upset how we thought of government administration. The "checks and balances" contained in the US constitution seem to have disappeared. Republicans hold majorities in both the House and Senate but he has bent both to his will. The Democrats faded away after their election defeat and are now leaderless and rudderless. Everything is run through the White House with the houses of congress appearing to be impotent.

Trump has learnt from his first term. Do not appoint people who will resist his decisions. Only appoint acolytes and loyalists. We have seen a number of unqualified people take over key positions; their reward for going to bat for him over the years and showing unwavering loyalty (loyalty is a one way street with Trump. If you are no longer useful to him, he will discard you). We have also seen violent criminals being pardoned and instruction come from the White House to the Department of Justice to drop a corruption case.

Business leaders have folded. All the big tech companies made big donations to Trump's inauguration fund and were front and centre at the inauguration. Most have done away with their DEI policies (Apple voted against cancelling it). Jeff Bezos announced that the opinions section of the Washington Post will be limited. Amazon also paid Melania Trump $40 million for a documentary on her life as the First Lady. Bezos has truly bent the knee.

The White House announced that they will take over selecting the journalists that make up the press pool from the independent White House Correspondents' Association. This is the dumbing down of the press corp to avoid being asked difficult questions.? The AP has been excluded from the press room by refusing to rename the Gulf of Mexico the Gulf of America.? With Bezos's announcement, we have seen a shift from an independent press to one where its editorial decisions are made by its owner. A functioning free press is required to hold governments accountable.

Then there is Elon Musk and his department of government efficiency (DOGE). No matter what country you are in, we all agree with government inefficiencies and areas where they can be approved. But he has implemented a slash and burn approach to the public service. He is not looking at where savings can be made, he is just firing people without even knowing their role. People who have been promoted but were still under probation in their new role have been fired. You cannot rip up the public service and start it over from scratch. It needs to be able to keep running.

It is difficult to know how far this will go? Less than a month ago I was writing that we need to cut through all the noise. We are still just a month into Trump's new administration but there are certainly signs of a move to an authoritarian regime.

Authoritarian regime

As investors in US companies (disclosure: I invest in the S&P 500, so I am all in on US companies), what will an authoritarian regime in the US look like?

It will not be like North Korea for starters. Markets and the economy will not shut down. It is likely that the US constitution and the laws that are in place regarding the running of government will be ignored. With sycophantic Republicans in place seemingly happy to cede power to Trump, there will not be much objection from Congress.? There will be many court cases but with so many Trump appointed judges already in place from his first administration, it is possible that they will be slow to object to any of his unlawful undertakings (we already saw an example of this in some of the bizarre decisions given by Aileen Cannon in the case against Trump for taking classified documents).

Inflation

One of Trump's key objections is immigration and to deport 11 million illegal immigrants. Under a Trump regime, due process will be ignored. People deemed to be illegal immigrants will be rounded up and shipped out. We have already seen some moved to Guantanamo Bay, a US naval base that is outside the jurisdiction of the US court system.

The problem is, the US needs illegal immigrants and seasonal migrants to fill jobs. The agricultural and food processing sectors are reliant on immigrants (not all illegal). These are tough and dangerous jobs. Companies will find it difficult to fill this roles. To attract US people to do these jobs, companies will have to pay more, which of course means that prices will increase, leading to inflation. If they don't pay more, less produced, so the cost of what is available will increase, which also leads to inflation.

Trump somehow is under the belief that tariffs are a good thing. He is currently looking at imposing 25% tariffs on Mexico, Canada, the EU, China. He harps on about how great they were in the 1920's. What he does say is that Hoover imposed tariffs as part of his failed strategy to get out a recession that ended up in the Great Depression and saw US exports decline by 66%. The US economy is booming at present, there is no need to impose tariffs to protect the US economy.

The wealthy get wealthier

The tax laws that Trump introduced in his first administration are due to expire in 2026 and he is looking to extend these. It is expected that continuing these tax breaks will cost the US $4.5 trillion in lost taxes, increasing to $5.4 trillion when you add in the interest cost of borrowing this lost income.

This means more bonds, which he will be asking the nations he is imposing tariffs on to buy. Tax breaks for the wealthy are being paid for by the rest of the population and for generations to come.

Regulation

Trump doesn't like laws and regulations getting in the way of him making money. He has broken regulations all the way through his business career. He will continue to do this from the White House, where he will rule by Executive Order, where he has been given immunity by the Supreme Court.?

There are always regulations that do not make sense. These will be the ones presented as examples of regulations that prevent companies from doing business. But regulations are required. Without them, workplaces become less safe and there will be an increase in workplace accidents (watch Landman to see how dangerous the oil mining industry is), dumping of waste gets into the water stream. Then there is the financial system, where we have already seen the result of light regulation in the financial crash of 2008.

The loosening of regulations will see increase in profits? as their cost of doing business decreases and their ability to produce increases. Too many cuts to regulation usually leads to increased greed as more and more corners are cut and it eventually leads to some sort of bust.

From an investor point of view, I do not think that an authoritarian Trump regime will be bad for markets as he will open up the opportunity to increase profits and therefore shareholder value. I do think that he will also increase the chances of a major crash.

While American politicians are weak and unable to stand up to Trump, I believe that American capitalism will. If his actions impact on Americans ability to make money, we will see action against what he is doing. And given his lust for power, he will cave to keep people happy. But before then, people will be happy to let him do whatever he wants.

Steven Barrett

03 March 2025?