Dealing with Trump’s Reign of Confusion

Investors can act to protect the rule of law in the United States

Gregory Makoff is a Senior Fellow at the Centre for International Governance Innovation and the author of Default: The Landmark Battle over Argentina’s $100 Billion Debt Restructuring.

Most investors and commentators are deeply confused by Trump II.

This is understandable. Between the rhetorical gymnastics, flips flops on tariffs, and the many attacks, reversals, and court rulings, it’s hard for anyone to get a clear picture of exactly what is going on.

Still, I was gobsmacked when the FT reported that Federal Reserve governor Christopher Waller—a Trump first term appointee—commented to Fox Business after Trump’s budget bill passed the House of Representatives:

Everybody I’ve talked to in the financial markets, they’re staring at the bill, and they thought it was going to be much more in terms of fiscal restraint, and they’re not necessarily seeing it.

I had thought, incorrectly, that most people understood from the beginning that Trump was always going to have a profligate budget and that DOGE was mostly political theatrics.

Opinions vary—widely.

Over the last few weeks, I sampled the views of investors and found significant differences by age, area of specialty, and location.

Younger investors worry most about Fed independence; they are concerned that a precipitous drop in Treasury prices would hurt their portfolios. London-based investors doubt the administration and are into the sell America trade. US-based investors, generally, have a more benign view: most are taking a wait-and-see approach to tariffs and the budget. Most US investors, in fact, believe that the US Federal government is too large, generally back Trump’s stated intention to shrink the government, and are unmoved by shrill, anti-fascist criticism of Trump’s methods.

Seasoned emerging markets investors, however, are deeply skeptical—they distrust Trump’s fiscal intentions, and they are wary about the way he is governing.

The damage of the populists

Emerging markets portfolio managers, as a class, are highly attuned to the twin problems of fiscal populism and the deterioration of rule of law. Why? Because they have spent the last quarter of a century working to avoid getting burned by populist countries like Turkey or Hungary, Argentina or Venezuela.

In Trump’s attacks on foreigners and domestic goods prices they hear echoes of speeches by Peronist presidents in Argentina. To their eyes, Trump’s attacks on Fed Governor Powell look like they came straight out of Erdoğan’s monetary playbook in Turkey. Trump’s interference with private sector entities evokes Venezuela’s Hugo Chávez and his successor Nicolás Maduro, who defaulted on the country’s debt. Meanwhile, Trump’s attacks on universities are a copy-and-paste of Hungarian Prime Minister Viktor Orbán’s political take-over of his country’s universities.

In sum, emerging markets investors I talk to view Trump as a traditional populist, the type of leader that revs up voters and grabs power in the short term and wrecks the economy in the long term.

The damage of populists—emerging markets investors know from experience—results from their use of the levers of government not to stimulate long-term growth but to reward favored sectors for political gain—i.e. to help assure they win the next election.

Trump is doing just this.

It’s his approach to everything, including his tax bill, which the Wall Street Journal Editorial Board called “largely a political document focused more on massaging a hundred constituencies than helping the economy grow.”

Trump’s political strategy is also deeply familiar.

At CPAC in February Trump said, “We are going to forge a new and lasting political majority that will drive American politics for generations to come.”

Indeed, he wants to create a one-party dominated state like the Peronist Party in Argentina or Erdoğan’s Party in Turkey. That explains his purpose in dismantling voting rules, the civil service, and law enforcement: these actions make it easier to put MAGA functionaries in positions of power and harder to get them out. This is how populism works—no surprise that Argentine commentators are calling him Juan Domingo Trump.

But I get that many US investors see the situation as “Trump being Trump” rather than an existential moment in US economic history. Most domestic debt and equity portfolio managers have not dealt with such populism in their personal or professional lives. Taking a wait-and-see approach is the normal thing to do when presented with new and evolving information.

I believe, however, that the wait-and-see approach will lead to a wait-and-lose outcome. Investors have too much at stake for our country’s economy to become disorderly like Argentina’s or Turkey’s. The time to act is now.

How to act

Here is something investors should do now to protect their interests as a class: start lobbying Senate Republicans to demand that Trump accept a short list of basic, market-protective, rule-of-law guardrails as a condition to voting in favor of his budget bill.

The leverage is there: Trump can only lose four votes in the Senate for his budget bill to fail—and his budget passed the House by a margin of only one vote, 215-214.

Here is an example short list of demands to present to the Trump administration:

1. Revoke all instructions, orders, or actions, contrary to the full, impartial enforcement of the rule of law, including Trump’s February 10, 2025, order to pause enforcement of the Foreign Corrupt Practices Act.

2. Sign executive orders to protect from political interference civil servants whose function it is to collect and distribute social, scientific, medical, and economic data to citizens. Specifically: 1) protect the independence of and increase funding for the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Census Bureau; and 2) reverse ideologically driven mass firings at NOAA of professionals responsible for weather and climate reporting, to assure high quality reporting of data that is essential for investors working in the industrial, real estate, and financial sectors, as well as for the health and safety of citizens.

3. Revoke all threats, funding stops, and compelled agreements against leading US universities, including Columbia, and Harvard. Similarly, restore cuts of the budget of the National Institutes of Health, which supports basic medical research, a core pillar of the US’s innovation economy.

4. Revoke all threats and compelled agreements with leading US law firms. Not only is a free market in legal services a cornerstone of free markets, but no private sector company or organization should be bullied by the federal government to make financial or policy concessions without legal authority, due process, and sound economic justification.

I call out Trump’s executive order against enforcing the Foreign Corrupt Practices Act (FCPA) because of my direct life experience working in high-risk countries. When I pitched for business, it was always an ideal situation for an official to ask for a bribe—but they never asked. Why? Because I worked for an American firm, and they knew about the FCPA, and they knew that nobody in my firm would pay because we would risk going to jail. Furthermore, I strongly believe foreign officials are strongly attracted to working with American firms because they desperately want their own countries to graduate to cleaner practices.

Let’s protect what’s good about America, let’s insist on the enforcement of all duly enacted laws. Every American should agree on reversing this order.

I call out support for the Bureau of Labor Statistics (BLS), in particular, because of the unique importance of labor data to financial markets. For decades, one of the biggest events of the month in the bond market has been the release of BLS’s monthly employment report, this jobs data providing an important indication of the direction of the economy. Such data, however, is regularly manipulated by populist governments.

For example, in 2007, Argentina started lying about its inflation and growth data, sowing distrust in its markets and its government. And doubts are already rising about the quality of economic data under Trump II, for example, Secretary of Commerce Lutnick is already calling for a jiggering of GDP data. Healthy markets trade on high quality data, not the leader’s mood swings—let’s protect that.

I write about the attacks on our universities as an investor in tech start-ups and as a former physicist who worked for years on projects funded by the Department of Energy and the National Science Foundation. There is no question that our world leading universities and the NIH seed our world leading innovation companies. Startups cluster around universities and the path from academic research papers to innovative new products is easily traceable. The administration’s precipitous, politically motivated attacks on research institutions is highly damaging to our future economic growth and must stop now. If reforms are needed in some institutions, there are well-known non-destructive, and legal means for the government to engage.

Finally, the Trump administration’s tactic of using its fiscal, regulatory, and law enforcement powers to compel settlements or extract concessions from private sector entities is profoundly anti-market. Our country has thrived for 250 years because our government has zealously protected the freedom of private entities to invest, grow, innovate, buy, sell, merge, trade and finance themselves with few restrictions and with minimal direct government ownership in the industrial sector. Let’s keep it that way.

Leverage now

No doubt, many will say that it’s not worth trying to lobby Senate Republicans to demand conditions on their votes for the bill because it would be political suicide for them to try. But that’s just not true: As reported by Axios, under the last minute threat of losing three votes on his budget bill from staunchly anti-Maduro representatives in Miami, Trump reversed a decision to grant a 60-day extension of Chevron’s license to export oil from Venezuela. Senators have the same leverage, and with staggered 6-year terms it is a lot easier for them to use it than members of the House. But, for this idea to work, market leaders need to make the case for these basic rule of law protections—forcefully and soon.

Gregory Makoff is the author of Default: The Landmark Court Battle over Argentina’s $100 Billion Debt Restructuring

The content in this piece is partly based on proprietary analysis that Exante Data does for institutional clients as part of its full macro strategy and flow analytics services. The content offered here differs significantly from Exante Data’s full service and is less technical as it aims to provide a more medium-term policy relevant perspective. The opinions and analytics expressed in this piece are those of the author alone and may not be those of Exante Data Inc. or Exante Advisors LLC. The content of this piece and the opinions expressed herein are independent of any work Exante Data Inc. or Exante Advisors LLC does and communicates to its clients.

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