Wall Street Wanted Trump. Now They Have to Deal With Him
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Welcome back to Votonomics, where politics and markets collide. This year, voters around the world have had the ability to move markets, countries and economies like never before. Now, the biggest of those votes has happened, and we've just got a couple more episodes left to help you make sense of it all. I'm Stephanie Flanders.

And I'm Adrian Waldrich.

And people were all checking in very enthusiastically. And I have to say, many hours later, I think it was about 3 a.m. that I came back to my hotel room. There wasn't a lot of that going on. But in the past week, the entire world has weighed in on how and why Donald Trump won the election so decisively, including Democrats.

our own Big Take podcast, which went out on this feed. We're going to be much more forward-looking and focus primarily on the economy and business in this episode. But first, Adrian, I did have one more fun voting statistic, which I thought you'd like. Though the margin of victory overall was not that large, Donald Trump did win decisively, and he won 90% of the counties in the US last week. 9-0.

But the roughly 10% of counties that the Democrats won account for around 70% of US GDP. So I think one of the things that that tells you is the big fact of American politics these days, at least when you look at last week, is that in terms of their electoral coalition, the Democrats are now the party of the economic winners. And the Republicans, relatively speaking, are the party of the comparative winners.

economic losers. Yeah, absolutely. The Democrats do incredibly well among the educated elites. And one of the biggest divides now in America is not over class, not over race, but between the educated, particularly the hyper-educated, and the rest of the population. And I think that the Democrats' job is to try and hold together a coalition of the elite's

with ethnic minorities, essentially. That's been what they've been trying to do. And this time around, they failed to do that. I wasn't as glamorous as you during election night. I was watching the election from Clapham in London. But one of the weird things about it, and I think it tells us something about the 90% versus the 10%, is that the British commentariat was absolutely convinced

that Kamala was going to win. And many of them, I'm afraid, made complete fools of themselves. But that's because they visit that 10% and they don't visit the other 90%. So there's a whole America out there.

You know, the right nation, as a couple of journalists once called it, that wasn't really given a look in, in far too much of the coverage of what's going on. And we need to focus ourselves on the flyover territory, you know, to understand what's going on in America. The other big fact about the economy, which Donald Trump has promised to fix and has complained about so vociferously on the campaign, is that the US is doing pretty well.

And so I think one of the things that we'll want to get into with our guests is whether and how he might be able to break that economy and what it means for those voters. Well, there's two questions, really. One is whether he can break that economy, but the other is whether he can take credit for that economy. There's nothing more sensible for a politician than to find a victory parade and put yourself at the front of this. And he may be doing that anonymously.

over the US economy. It's not at all a bad time to be coming in as president, whatever the longer term implications of his policies. Let's get into some of that now. So Trump 2.0 might mean for the economy, for interest rates, for the Federal Reserve, more broadly, I guess, for the future of business. And with us to talk about some of that,

Two friends of the pod, John Authors, senior editor for Markets and Bloomberg Opinion columnist, as well as author of The Fearful Rise of Markets. And Tim O'Brien, head of Bloomberg Opinion and author of Trump Nation, The Art of Being the Donald.

It's an embarrassment of riches. We've not managed to have both of you at the same time before, but we have had you multiple times. John, why don't we start with the Federal Reserve? They had a meeting, well, they were meeting the day after the election. The chairman had a press conference. That was after a massive market rally that we'd seen, which is largely still continuing and not just in Tesla.

Investors seem to think Trump 2.0 will be fabulous for US companies and not so bad for inflation. So if you look at the cost of borrowing currently for the government, are they right?

That is absolutely open for question at this point. This was the landmine that blew up the Biden presidency. What he wanted to do was deliver for exactly the people who feel most passionately that he didn't deliver for them. And the main reason that the various things he tried to do didn't work was because inflation took off.

And there is a risk that Trump 2.0 might just fall into the same trap. If you do have big tax cuts and big tariffs, you're playing with fire if your mandate is coming from people who are absolutely furious that your predecessor let inflation get out of control when inflation isn't absolutely, totally, unambiguously under control now. That said, he's got a lot of adults in the room

with him this time, and they are 100% aware that that is the issue. And so obviously, there are going to be some fascinating polls when they decide exactly how high they're going to hit tariffs, how aggressively they're going to try to cut taxes, and the way the market will move and the way inflation moves over the next few months will inform that. In terms of the Fed, it could be the final moment in which the

economic order of we associate with Paul Volcker and Margaret Thatcher and Ronald Reagan finally absolutely disappears. Post-Bretton Woods, the replacement for the gold standard was basically an independent Federal Reserve who you could trust run by somebody like Paul Volcker. And for some decades, that was a very adequate replacement for the gold standard.

There's any number of reasons to question whether the current version of the Fed and its independence is working. Powell's term comes up in, he has to leave in May 26. That gives 18 months to have a very interesting discussion about exactly how much Trump and his administration want to limit and change

Fed independence. The Fed is a very unpopular organization with exactly the people who have just voted for Trump. Markets would be very, very nervous about a reduction in Fed independence that left somebody like Donald Trump having the last interest rate. That would be scary.

after having what you might call a predictable response on his election win, you know, you had the stock market go up, but actually bond yields going up, people concerned about a rising interest rate. And then I guess the way that moderated and where we've sort of ended up

and more generally the mood around it. Given how much we've talked about the risk to Fed independence in the run-up to this election, the risk of higher inflation coming out of tariffs, I was just relatively surprised that people seem to be betting on those grown-ups in the room, though we're assured that there aren't going to be as many as there were last time, that they will somehow be moderating Donald Trump's behaviour. I mean, maybe, Tim, I'll bring you in because

People who have spent a long time looking at Donald Trump and you among them have always said to me, well, it depends on whether he really cares because anything he doesn't really care about, he's quite happy to just change his view. Is this something that he's quite happy to change his view on or does he really care about the Fed? I think he'd be happy to change his view on the Fed. I don't think he's going to go to war over Fed independence. He'll go to war over immigration. I think he's deadly serious about deporting millions of migrants if he can. And I think he hasn't

Thought through the consequences of that, in addition to the list that John had of inflationary pressures on the U.S. economy during Trump 2.0. Should they drive, you know, 11 million undocumented immigrants out of the United States, it's going to have a devastating impact on small businesses, medium-sized businesses. And it'll be very much like what happened in the restaurants and hotels in the

in England after Brexit came crashing down on the British economy. The U.S. needs a lot of those workers. And if they're not around, it's going to be inflationary. It's going to raise inflationary pressures along with if tariffs are in play, if the debt piper is coming due, the receipts on the U.S. debt are coming due. And I do think he will just see that through. It's so core to what his political message was. Among his earliest cabinet appointments are

immigration warriors. You know, I'm glad that we're talking about the economy because I think it explains the electoral forces that are mystifying people more than anything else. I think the big force that has landed on both of these parties is that the white middle class working coalition that got built during the New Deal in the 1930s and lasted until Ronald Reagan has been falling apart at the seams.

Because the economy changed. You know, in the same way that the U.S. went through upheavals in the 1890s when industrialization overran the agrarian economy, we are now in the midst of the service and technology economies overrunning the industrial economy. And workers are getting displaced en masse. And real wages...

And a living wage, not just a lowball kind of subsistence wage, but living wages in the United States are not where they should be for huge swaths of the American population. And it's been that way and it's been degrading that way since the 1980s. And those voters have been looking for a home. And essentially both the Republicans and the Democrats have ignored them. And I think you run into the 2008 financial crisis again.

And this just accelerates. And Donald Trump is an outcome and an accelerant of these things. Wait a minute, Tim. I don't want to be a spokesman for Trump, but I would say that they would claim that they've tried to service those people by doing two things. That Trump has claimed that? Yes. One is addressing the problem of outsourcing, and the other is addressing the problem of immigration, both of which they would say put a downward pressure on the earnings of non-educated people. Not entirely wrongly.

The real pressure on uneducated people is their wages. And immigration plays a role in that, in driving wages down. And so does outsourcing play a role in that. You know, it drives wages down and it creates competition in the workplace. I don't think the Trump administration has offered authentic solutions for that population. And they're about to find that out. I don't think the Democrats have come up with long-term solutions.

And so I think you have this very malleable voting bloc that moves from party to party because they're desperate. The people who were complaining about inflation weren't just complaining about bread and gas prices. It was really an affordability problem. That population of people can't afford college, they can't afford homes, they can't afford funding their own retirement, and they just aren't getting their piece of the American dream, and justifiably they're angry about it, and they take it out on both parties.

And Trump was the beneficiary of it this time. But it's very interesting if you look at some split ballots all across the recent electoral map where people voted for Trump at the top of the ticket and Democrats down ballot. AOC, a prominent left member of the Democratic Party, posted a little chart to Instagram noting that in her own district, the voters who voted her into office as a progressive Democrat also voted for Donald Trump as president.

And the common thread in those voters who voted for both of them was anti-institutionalism.

They feel like American institutions aren't servicing their needs and meeting their needs. Quite rightly so. And that's the challenge the U.S. faces going forward, I think. I guess one question is whether the economy that he's inherited was already delivering a bit more for those people and whether it will continue to deliver despite or potentially with some help from...

Donald Trump's policies. You know, we've tended to think that he should just not wreck what he's inherited with a lot of uncertainty and the tariffs and everything else. But some of his policies could potentially help parts of America if it brings business back, manufacturing back to different parts of America. Do you see any scope for that?

Because I'm really struck by the comparison with the 1920s, whereby you had a, you know, you had a policy of tariffs and you had a policy of restricting immigration from, you know, 1922.

for onwards. And you've got an enormous economic boom in the short term, and one that benefited big, big, big chunks of the population. Of course, in the long term, it was a disaster. But in the shorter term, it led to higher living standards and the biggest productivity growth in American history. I'm just not certain that in the shorter term that this will be such a disaster.

That's not my reading of what happened in the 1920s and 1930s. Protectionism starts in a much, much bigger way after the Wall Street crash, which is a perfect example of how allowing free market capitalism to go a little too far with too little regulation can create dangers. I think if you wanted to, if there is one figure that we're seeing to, um,

that that that trump might be trying to air just this goes back to very deep history it's it's louis the 14th minister colbert who's regarded as the inventor of mercantilism which is a sort of precursor of capitalism the idea of trade as much as you can with your colonies and don't buy any stuff in it's about maximizing trade balance as the way to grow an economy

And that isn't a ridiculous idea. It didn't go too badly for Louis XIV for a long period of time, although I'm not a great expert. I think the way Trump might make this really work, and this comes out from something he said to John McElthwaite when he was interviewed at the Economic Club, he said that there will be no tariffs at all if you build your stuff in America. I think what he's hoping for

in an inchoate way, is a grand deal where he tells people, this is not unlike what's happened under Thatcher in Britain with Asian carmakers coming to Britain once the unions had been broken in Britain. You can come here and I don't mind you taking some of the profits, providing you employ Americans to do it.

And that's a very difficult deal to pull off. But that seems to be what he's interested in. He's very angry about nearshoring. I used to cover Mexico. The Mexicans are horrified because at one point things looked great for Mexico. And it seems that he's going to try very hard. Trump is going to try very hard not to.

to allow foreign producers to get away with moving from China to Mexico. He wants to make sure they come to the States. There's definitely a way that could work out spectacularly well for rebuilding certain parts of American industry that have been in decline. It's hazardous and it's risky, but there certainly is a logic to it. If we don't like globalization, if globalization has created inequality at a level that

continue to show they can't tolerate, then what are you going to do instead? Something like a coherent Colbertese mercantilism, logically, might be one of the things that's relatively high on the list to try next. I mean, I think you're right, John. And it did come through in that interweaving

interview that he did with Editor-in-Chief. It's an entirely consistent, sort of internally coherent view of America First and the use of tariffs. And he also was talking about making money from some tariffs, you know, low level of tariffs on lots of goods just as a sort of cash machine. And then, as you say, other high levels of tariffs if you really want to move production home. And those two things, you can't use the same tariff to achieve both those things, but you can certainly do different things in different markets.

The bet that the financial markets investors seem to be making, comparisons of 28 aside, maybe we're just all heading for a fall, is that the sort of deregulation, the let rip, the Elon Musk being in a high position, pro-business approach, transactionalism, will on balance be good for American capitalism. Yeah.

Whereas I guess the argument against would be, you know what, you can have too much transactionalism. If you treat everything as a transaction with individual businesses, you're creating a lot of uncertainty. You're undermining the rule of law because you don't have any kind of level playing field. It's just who can pick up the phone to Donald Trump. And I just wondered, the investors bet at the moment seems to be that's not going to be bad for Wall Street to have that kind of transactionalism all the way down.

Ultimately, who's going to pay a price for that, do you think? Taxpayers. Ultimately, it'll be taxpayers if a bailout is needed. I think that's what happened. In 1929, we ended up having to have a world war to resolve the economic dislocations that the 1920s produced.

I hope and don't think it's going to come to that. But, you know, Bob Burgess on Bloomberg Opinion wrote a very instructive column about you can look at the equity markets as one barometer. But if you look at what's happening to the dollar and what's happening in debt markets and what's happening with credit derivatives.

The dollar's going in the exact opposite direction that Trump's wanted it to go, and it's strengthening. He's wanted it to weaken in order to make U.S. exporters more competitive overseas. However much Wall Street wanted Donald Trump in office, they now have to live with him.

And he is a mess of contradictions with no really clear philosophic grounding other than saber rattling for the sake of saber rattling. And in financial markets, it's like nitroglycerin. And sometimes that can be useful to blow through walls when you want to do new construction. And sometimes it can just blow up in your hands.

And I think we don't know which way this will go. But, you know, I think it also depends on who he brings into the administration, right? There's some big jobs that aren't filled. Jay Clayton has been mentioned as a possible SEC chair. That would, I think, feel a bit like an adult in the room in a way that people may not have expected. Remind us who that is. He's a Wall Streeter with some regulatory experience in Washington in the securities markets.

He's looking to Wall Street for the Treasury Department as well. And I don't think anybody's interested in just creating a toxic stew of deregulation and mismatched financial policies that end up becoming explosive. But you never know, because the difference in Trump 2.0 from Trump 1.0 is he is on a very profound revenge tour this time. And he's got a long enemies list.

And so there's just going to be a lot of non-rational, non-capitalistic approaches to problem solving that will surprise people, I think. I think we should focus a little bit more on the non-capitalistic side as well, because I think if you go back to the 1990s, you had two parties that were both

absolutely pro-business in their hearts. Now, I think you have two parties in some ways that have big anti-business elements. That's obviously true with the progressive Bernie Sanders wing, but there is a wing of the Republican Party now that is very anti-business, that thinks business has hollowed out the middle classes, exported jobs.

J.D. Vance being a spokesman for that, to some extent Marco Rubio, who would be quite happy to squeeze business in all sorts of ways, to impose tariffs that business doesn't want because they think business has had it too good. And that's one reason why they attracted a certain chunk of the voters, because they wanted to stick it to business. So you have businesses in a much, much more delicate position than it was in the 1990s. And Trump...

partly for personal reasons, would quite like to stick it to chunks of corporate America. Until they pick up the phone and kind of give him a few compliments. He's been quite clear to us that, you know, if you pick up the phone to Donald Trump, he admires your chutzpah and he gives you a deal like Tim Cook. But he also wants to give a hard time to business. So as I say, this is almost a person who operates above class interests, partly in his own interests and partly meeting out justice or meeting out rewards according to him. And so the anti-business

section of the Republican coalition, as I say, with JG Vance is quite a spokesman for, is quite a powerful group and can be used to bring business in line at the very least. And Elon Musk is at Mar-a-Lago helping Donald Trump

hand-picked cabinet members. So there is a, you know, the Silicon Valley contingent has someone deeply embedded in the White House. And you made such a great point, Adrian, about where both parties are with business. I think the Democrats are bad at framing all of the opportunity and innovation that

that comes with the American business community. And the Republicans have lost sight of that. And there's a lot of vilification around both parties' messaging towards the business community. And I think, as with any professional class, some of it's justified, including the media. We all make mistakes. But I think, you know, having a whole group be put in the doghouse that is essentially the fuel of the U.S. economy is going to be really problematic. And I think

This will really come home to roost in the Trump administration's view of big tech.

because they're broadly interested in defanging the FTC and antitrust movements, and yet they really want the big tech monopolies to be broken up. So you have this philosophic contradiction there. And then Silicon Valley has been the hotbed of American innovation now in a profound and revolutionary way for a few decades, with Musk himself being an ambassador for that through Tesla and everything else. And yet...

There's also this hostility towards the power it now wields. And you can't really have it both ways. And I don't think the Trump administration has figured out how to, you know, split the baby there. You'll have in oligarchs and out oligarchs, you know, all competing for the attention of the Sun King, if we go back to the Colbert analogy. Just like Russia. Yes, there's a convergence in different countries of the way things are going to do that. If you try to remember my...

my undergraduate economics, but the Nash equilibrium or whatever, the point where everybody is comfortable is where everybody does their own mercantilist thing. That seems to be the moderately stable equilibrium that we might be heading towards. I think the mention of antitrust is fascinating in that it's one of the places where under the weird political realignment that we're seeing that you've actually had Amy Klobuchar, a very impressive democratic senator, and

Josh Hawley, who was a fairly clarion of the Trumpite right, a very bright Republican senator from Missouri, were drafting really very aggressive antitrust bills together.

And it seemed to me that this was a kind of thing that there was a possibility of a meeting, not unlike with Theodore Roosevelt over a century ago, of, yes, we sort of believe in capitalism, but this is acceptable. Something needs to be done to rein it in and make it fairer. That seemed to be a version that might come through as a new consensus. I don't myself think if we're getting rid of Lina Khan and empowering Elon Musk...

I assume that's less likely than it was. But I can, as Tim was saying, I can quite easily imagine Donald Trump deciding a year from now, actually, yes, let's split up some monopolies and do anti-Trump. I think the problem with that is I think there'd just be too many of the big businesses and donors that have supported Donald Trump would stand to lose from continuing that kind of thing.

pro-competition thrust. But it is interesting. I think if J.D. Vance ended up being more influential and Donald Trump got fed up with Elon Musk, which I guess a lot of people suspect might happen, J.D. Vance obviously has talked favorably about Lina Khan and I think does have more of that focus, as you suggest. Think about Steve Schwartzman, right? Another huge Trump backer.

stalwart of the Republican Party, founder and chairman of Blackstone. I think it's now probably the biggest private equity firm in the world. His portfolio companies, his firm's companies, expand the entire spectrum of the American business landscape in every way imaginable. And its viability as a firm depends on that, and his investments depend on it. And he is not going to want to see Donald Trump taking a bulldozer and

to 95% of Blackstone's portfolio. Having said that, even if he doesn't want to see it happen, the random thing with Trump is it could anyway. Thank you, Tim and John. Thank you so much. That was all good fun.

Well, if nothing else, we've raised the tone on this podcast. You take your common or garden references to the 1920s and 1930s. We poo-poo those. We take them and we raise them to Louis XIV style mercantilism. Although I should say, just to clarify people who were listening to John Althaus earlier, the Colbert he referenced...

in the context of mercantilism was Jean-Baptiste Colbert and not Stephen Colbert, who we can see quite often on American television. Thanks for listening to this week's Photonomics from Bloomberg. This episode was hosted by me, Stephanie Flanders, with Adrian Wildridge, and it was produced as ever by Summer Sadi, with sound design by Blake Maples, and special thanks to John Authors and Tim O'Brien.

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