The last report used short-term expected trading to deduce Trump's policies and asset prices, this article focuses on long-term logic. Previously, Trump's policies referred to Agenda47 (the 47th president's agenda) and public speeches, and this article supplements with five perspectives: 1) Project 2025 (the Republican 2025 plan); 2) 2024 GOP Platform (the Republican 2024 governance program); 3) Bloomberg Businessweek's interview with Trump; 4) JD Vance's policy preferences; 5) the capital power represented by Trump. So why did the US stock market and commodities adjust one after another when the Fed released signals for a rate cut in September and Trump is expected to lock in an early victory?

Perspective 1, Project 2025: The hidden undercurrents of structural reconstruction at the grassroots level. Project 2025 is a series of conservative and establishment policy proposals proposed by an extreme right-wing think tank in the United States. The plan includes four pillars: policy plans, personnel databases, online training, and 180-day operation guidelines after taking office. Our understanding of the plan is that Trump's policies in the previous term often did not follow common sense and caused internal disputes in the party. Therefore, conservatives have three core demands: first, to win the election with unity within the party; second, to institutionalize policies and reduce risks; third, to concentrate power and control the four-year term situation towards the federal government.

Perspective 2, Republican governance program: a complete return to "common sense". 1) Economic policy: "anti-inflation", "tax reduction", and "innovation assistance". Trump's core demand is to quickly release potential inflation through energy supply. The platform implies that tax reduction policies will be gradually implemented and follow the pace of adding tariffs, with future economic development focusing on three emerging industries: digital currency, AI, and aviation. 2) Foreign policy: opposing illegal immigration and strengthening military power to play non-US. The platform adheres to Trump's "America First" principle, taking a tough stance on illegal immigration and reducing geopolitical risks through military means. 3) Industrial policy: return to traditional energy, vigorously develop local manufacturing, and optimize the allocation of education and medical resources. In the field of energy, the Republican Party supports the release of domestic traditional energy supply; in the field of industry, the platform emphasizes strong support for manufacturing and employment protection; in the field of education, the Republican Party encourages the "right-leaning" of ideology and the optimization of the education system; in the field of medical care, the Republican Party focuses on the financial stability and sustainability of the medical system.

Perspective 3, Bloomberg Businessweek interview: the coherent policy logic in Trump's eyes. The energy revolution reduces inflation. Tariffs on foreign trade and tax cuts for domestic affairs are gradually implemented to achieve moderate fiscal expansion. Anti-immigration policies protect local workers' employment, and supporting policies and funds achieve the localization of manufacturing. Considering Trump's governance in the previous term, the probability of Trump's high probability of executing his promises is high, and rule constraints to some extent can be handed over to commercial interests.

Perspective 4, JD Vance: The positioning is an "executor" rather than a "supervisor". In terms of economic policy, Vance advocates the implementation of laws that are mostly "relaxed regulation" + "tax reduction", and strongly supports adding tariffs; in terms of foreign policy, Vance's inclination is fully permeated with the principle of "America first", with a strong unilateralism; in terms of industrial policy, Vance supports "return to traditional energy" + "vigorously developing manufacturing". We judge that if Trump wins the election, Vance is more likely to play the role of "executive or spokesperson" rather than "supervisor or intermediary".

Perspective 5, Two realities reflected by Trump's campaign funds: financial deregulation and the return of traditional industries. Unlike the last round of Trump's "self-financing", there are many supporters of Trump this time. From the distribution of industries, "financial deregulation" and the "return of traditional industries" are the two main themes.

In the "Trump 1.0" phase (2017-2020), US stocks and bonds had double bulls, and the technology and medical sectors had excess returns in the long term; why did US stocks and commodities collectively adjust as Trump 2.0 is approaching? 1) The coherence of Trump's policies is due to "dislocation", but the pace of policy landing still has great uncertainty, which makes the "Trump program" seem contradictory and the uncertainty of US domestic politics will increase in the next four years; 2) The political cycle law of US stocks predicts that if Trump is elected, there will be an annual-level adjustment in US stocks in 2025-2026. After repeatedly reaching new highs, overseas investors are trying to profit and liquidate; 3) As mentioned in the report "Will the Fed cut interest rates this year?" Now that Biden's reelection prospects have greatly decreased, the probability of an early rate cut has increased, but a rate cut implies confirmation of a slowdown in the economy and will instead help to reduce the already high valuation of the US stock market.

The main text is as follows:

Perspective 1, Project 2025: The hidden undercurrents of structural reconstruction at the grassroots level.

Project 2025 is a series of policy proposals for conservatives and establishment proposed by the US far-right think tank Traditional Foundation [1]. The plan consists of four main pillars: policy plan, personnel database, online training, and a 180-day post-employment operations guide. It proposes to receive the power of appointment and dismissal of federal employees, implement party control over departments such as the Department of Justice, the Federal Bureau of Investigation, and the Department of Commerce, abolish the Department of Homeland Security and the Department of Education, and develop detailed implementation plans for topics such as economics, immigration, medical care, education, military, and climate in great detail. Of course, the landing situation of the plan still has unknowns. It is relatively certain that the Republican Party is trying to achieve balance internally. We understand the core demands of the conservative party are threefold: first, party unity to win the election; second, the policy institutionalization to reduce risk; and third, the concentration of power to the federal government to control the four-year term situation. Although Trump denied any connection to Project 2025, a considerable number of participants were in close contact with the Trump campaign.

Republican Party's governing principles: fully return to "common sense"

The Republican Party's governing principles begin with the eye-catching phrase, "America First: A Return to Common Sense," and the deep meaning behind "common sense" is a call for America to return to traditional values. The foreword of the proposal calls back to "common sense" five times: 1) resolving immigration issues, ensuring border security; 2) controlling inflation and promoting manufacturing employment; 3) restoring energy supply and achieving energy independence; 4) establishing a strong military; 5) ensuring judicial safety [2]. The proposal also puts forward 20 commitments and elaborates on them in 10 chapters. We summarize them into three aspects: economic, foreign and industrial policies.

1. Economic Policy: "Anti-Inflation," "Tax Reduction," and "Facilitating Innovation"

The main theme of Chapter 1 is "overcoming inflation and quickly reducing prices," conveying two signals: first, high inflation in the past was due to the Biden administration's governance; second, Trump's desire to reduce inflation was strong and capable. Trump, of course, understood that the three major policy proposals of "increasing tariffs + reducing income tax + anti-immigration" would push mid-term inflation upward, but he hoped to quickly release potential inflation hedging risks through energy supply. "Will release all energy production, including nuclear energy, and lower energy prices to even lower than the historic lowest level of Trump's first term." We believe this is a key part of Trump's fight against inflation during his term. Other measures, such as "reducing family and business regulatory costs," "controlling wasteful federal spending," and "reducing geopolitical risks," are just icing on the cake and not helpful.

The tax reduction intensity and landing rhythm may be slower than the previous round. The proposal states that "permanently implement the 'Tax Cuts and Jobs Act' which doubles the standard deduction and expands the child tax credit, cancels the tip tax for millions of restaurant and hotel workers, and seeks further reductions in taxes." Due to subsequent high tariffs, the proposal points out that "as tariffs on foreign producers increase, taxes on American workers, families, and businesses may decrease," implying that the implementation of tax reduction policies is more likely to be gradual.

Future economic development will focus on three emerging industries: digital currency, artificial intelligence, and aviation. Regarding digital currency, the proposal advocates "reducing the government's crackdown on cryptocurrencies, defending the right to mine bitcoin, and opposing the creation of central bank digital currencies"; regarding artificial intelligence, the proposal will "support the development of artificial intelligence based on free speech and human prosperity, and cancel the dangerous executive orders of the Democrat's that have hindered artificial intelligence innovation"; in the aviation industry, the Republican Party supports "government and commercial cooperation in space exploration," and enhances the "ability to enter, live and develop space assets."

2. Foreign Policy: Opposing Illegal Immigration, Strengthening Military Power to Balance Non-Americans

The proposal adheres to Trump's "America First" principle, takes a tough stance on illegal immigration, and reduces systemic geopolitical risks through military means.

Regarding immigration issues, the proposal explicitly states, "restore all border policies of the Trump administration and complete the construction of the border wall" to complete the unfinished business of the previous term. At the same time, the proposal hopes to control the "quality" and "quantity" of immigrants and advocates "prioritizing immigrants who can contribute to the American economy and society" to raise the threshold for legal immigrants. At the same time, "stop providing luxury housing and taxpayer benefits for illegal immigrants" and "reduce federal funds for sanctuary jurisdictions" to ensure that illegal immigrants are "repatriated" rather than "arrested and released."

Regarding the issue between Russia and Ukraine, according to recent statements by Hungarian Prime Minister Orban, if Trump wins the election, he will "quickly demand that Russia and Ukraine conduct peace talks and has developed a 'meticulous plan' for this" [3]. Coupled with the proposal's mention of "ending global chaos," we believe that Trump may solve the issue between Russia and Ukraine through negotiations with Putin and cutting aid to Ukraine.

Regarding the issue between Israel and Palestine, the Republican Party still considers Israel an important ally in the Middle East, and the proposal puts forward "support for Israel and seeking peace in the Middle East." Therefore, Trump is likely to maintain support for Israel after taking office and strengthen US influence in the Middle East by doing so.

3. Industrial Policy: Return to Traditional Energy, Vigorously Develop local Manufacturing, Optimize Allocation of Educational and Medical Resources

Regarding energy, the Republican Party supports a strong release of traditional domestic energy supplies to ensure energy independence. The proposal puts forward "comprehensively increasing energy production, simplifying licensing procedures, and terminating restrictions on oil, natural gas, and coal."

Regarding industry, the proposal emphasizes strong support and job protection for the manufacturing industry. Continuing the strategy of the previous term, the Republican Party proposes the return of the "key supply chain," creating more jobs for domestic workers by supporting the "domestication" of manufacturing, and correspondingly raising wage levels. At the same time, the Republican Party proposes to revitalize the "defense key industries" and the "American automobile industry," and promote the development of related industries by investing in the construction of the "Iron Dome missile defense shield."

In terms of education, the Republican Party encourages the ideological tilt and optimization of the education system. Their advocacy of "promoting fair and patriotic civic education" and "supporting schools that teach American principles and Western civilization" aims to reduce left-wing propaganda and inappropriate political indoctrination aimed at students. At the same time, the Republican Party hopes to launch "more affordable alternatives to traditional four-year college degrees" and expand 529 account subsidies for family education, thus ensuring the universality of education. In addition, the Republican Party emphasizes the "localization" and "fairness" of education, proposing to return education system management to various states and return education rights to parents. They also propose to "terminate tenure for teachers" to prevent the concentration of education power and deepen the overall reform of the education system.

In terms of medical care, similar to the political proposals of the Trump Agenda47, the Republican Party's manifesto focuses on the financial stability and sustainability of the medical system. The manifesto promises "not to cut healthcare or social security funds" while also "reducing the cost of drugs and treatments" in a more market-oriented way to ensure that patients can afford treatment. In addition, the Republican Party advocates avoiding including illegal immigrants in the health insurance list to further reduce the overall burden of the social security system.

3. Bloomberg BusinessWeek interview: Trump's self-contained policy logic. On June 25th, Trump accepted an interview with Bloomberg. We believe that there are several main pieces of incremental information: firstly, in terms of economic policy, Trump "emphasized solving inflation problems by increasing energy production", will not "discharge Powell before the end of his term" and suggested "avoiding interest rate cuts before November". Trump also emphasized that "Trump economics=low interest rates+low tax rates, and tariffs and other economic measures are used to promote corporate return to the United States, ensuring the competitiveness and independence of the United States in the global economy". Secondly, in terms of foreign policy, Trump emphasized that "Saudi Arabia needs U.S. protection" and that "high oil prices are one of the main reasons why Russia started the war". Thirdly, in terms of industrial policy, Trump emphasized the need to balance traditional energy and new energy and believes that "some regulation should be applied to large U.S. technology companies". However, at the same time he hopes that U.S. technology companies can continue to develop and grow, maintaining global competitiveness. Combined with the Republican Party's governing agenda, Trump's policy logic is self-contained: energy revolution reduces inflation, external tariffs and internal tax reductions gradually achieve fiscal moderate expansion, anti-immigration and protecting local worker employment, supporting policies and funds to achieve localized manufacturing industry. Considering the governing situation in the previous term, Trump's probability of saying what he means is relatively high, and to some extent, creating business interests for rules and restrictions can be transferred.

On June 25th, Trump accepted an interview with Bloomberg, and we believe there are several main points of incremental information:

1) In terms of economic policy, Trump "emphasized solving inflation problems by increasing energy production", will not "discharge Powell before the end of his term" and suggested "avoiding interest rate cuts before November". Trump also emphasized that "Trump economics=low interest rates+low tax rates, and tariffs and other economic measures are used to promote corporate return to the United States, ensuring the competitiveness and independence of the United States in the global economy". 2) In terms of foreign policy, Trump emphasized that "Saudi Arabia needs U.S. protection" and that "high oil prices are one of the main reasons why Russia started the war". 3) In terms of industrial policy, Trump emphasized the need to balance traditional energy and new energy and believes that "some regulation should be applied to large U.S. technology companies". However, at the same time he hopes that U.S. technology companies can continue to develop and grow, maintaining global competitiveness.

2) In terms of foreign policy, Trump emphasized that "Saudi Arabia needs U.S. protection" and that "high oil prices are one of the main reasons why Russia started the war".

3) In terms of industrial policy, Trump emphasized the need to balance traditional energy and new energy and believes that "some regulation should be applied to large U.S. technology companies". However, at the same time he hopes that U.S. technology companies can continue to develop and grow, maintaining global competitiveness.

Combined with the Republican Party's governing agenda, Trump's policy logic is self-contained: energy revolution reduces inflation, external tariffs and internal tax reductions gradually achieve fiscal moderate expansion, anti-immigration and protecting local worker employment, supporting policies and funds to achieve localized manufacturing industry. Considering the governing situation in the previous term, Trump's probability of saying what he means is relatively high, and to some extent, creating business interests for rules and restrictions can be transferred.

Four, JD Vance: The positioning is an "executor" rather than a "supervisor". On July 15th, after being elected as the Republican presidential candidate, Trump announced that he had chosen Ohio Senator James David Vance (J.D. Vance) as his running mate, the vice presidential candidate[6]. Vance's policy proposals are highly consistent with those of Trump, and in some respects, more radical than Trump. According to data from the U.S. Congress[7], after being elected as a federal senator from Ohio in 2022, Vance participated in 345 legislative initiatives, most of which remained in the proposal phase, and focused on expressing positions rather than actually implementing policies due to his lack of seniority. We found that Vance's ideas on economic, foreign, and industrial policies are similar to those of Trump and are more direct and explicit than those of the Republican Party's governing agenda in some parts.

On July 15th, after being elected as the Republican presidential candidate, Trump announced that he had chosen Ohio Senator James David Vance (J.D. Vance) as his running mate, the vice presidential candidate[6].

After being elected as a federal senator from Ohio in 2022, Vance participated in 345 legislature initiatives, most of which remained in the proposal phase, and focused on expressing positions rather than actually implementing policies due to his lack of seniority.

In terms of economic policy, Vance proposed bills for "relaxing regulation" + "tax reduction" while strongly supporting tariffs. In terms of regulation, Vance proposed to ban the central bank from issuing "digital currency" to avoid individuals' fund flows being tracked by the government. The measures proposed by Vance have a larger focus on maintaining the independence of market-oriented institutions by limiting the disclosure requirements and scope of regulatory agencies for insurance companies and financial institutions. In terms of taxation, Vance adheres to the conservative style of the Republican Party, advocates for the permanent reduction of some business income taxes, and seeks a wider range of tax deductions. It is not difficult to see that Vance's policies in the economic field are highly consistent with those of Trump.

In terms of foreign policy, Vance's inclination is penetrated by the principle of "America First" with a strong unilateralist color. On the issue of immigration, Vance wants to "initiate expulsion procedures" and "prevent sanctuary cities from obtaining federal housing subsidies", which is consistent with Trump's call to stop "arrest and release" and aims to fundamentally reduce the number of illegal immigrants in the country. As stated in Agenda47 during Trump's presidential campaign, Vance called for the Homeland Security Department to detain "non-U.S. nationals arrested for burglary, theft or shoplifting". On foreign policy issues, Vance shows a more "American-interest" stance, paying less attention to the issue of Russia and Ukraine, and showing strong support for Israel. Vance once said, "Israel has a goal that can be achieved, while Ukraine does not,"[8] and he defended Israel's wartime policies. Compared to the expression of "seeking peace" in the governing agenda, Vance's support is more radical.

Combined with the Republican Party's governing agenda, Trump's policy logic is self-contained: energy revolution reduces inflation, external tariffs and internal tax reductions gradually achieve fiscal moderate expansion, anti-immigration and protecting local worker employment, supporting policies and funds to achieve localized manufacturing industry. Considering the governing situation in the previous term, Trump's probability of saying what he means is relatively high, and to some extent, creating business interests for rules and restrictions can be transferred.

In terms of industrial policy, Vance supports "returning to traditional energy" and "vigorously developing manufacturing". Vance opposes "restricting natural gas related equipment" and "arbitrarily prohibiting large-scale energy or mineral leasing or licensing", and tries to slow down the "greening" of energy structure. At the same time, Vance once stated that "climate change is not a threat", which is in line with the underlying logic behind Trump's withdrawal from the Paris climate agreement. Vance emphasizes the protection of local manufacturing and hopes to introduce laws such as the "American Car Workers Priority Act" to encourage the return of the overall industry chain, including restricting offshore outsourcing of car manufacturers and promoting the use of American parts and labor in the automotive manufacturing industry, thereby boosting the American auto industry and improving the treatment of American blue-collar workers.

For a long time, the vice president's influence on US policy has not been quantified, but combined with his relatively short time in politics and his high degree of consistency with Trump's ideas, we judge that if Trump wins the election again, Pence is more likely to play the role of "executor or spokesperson" rather than "supervisor or moderate", and he may express more radical views on some sensitive issues in an attempt to test opposition opinions.

Five, the two realities reflected by the capital of the Trump campaign: financial deregulation and the return of traditional industries.

In theory, the campaign funds of a specific industry often reflect the support for industrial policy, and we can also infer Trump's policy preferences from the distribution of campaign funds. According to data released by the Open Secrets official website as of June 21, in this round of election, the Trump campaign committee has raised about 19.6 billion US dollars.

Unlike the previous round of Trump's "self-financing", there are many supporters of Trump this time. Data shows that in Trump's campaign funds this time, large donations account for the majority, exceeding 1.3 billion US dollars. At the same time, small donations of less than $200 are also considerable, indicating that Trump is still supported by grass-roots groups represented by blue-collar workers. Trump's "spenders" are different from ordinary donors. Their support is similar to "votes", which not only represents market expectations, but also implies a bet on the realization of policy benefits, reflecting the approval of Trump's policy proposals by these donors.

From the perspective of industry distribution, the two main themes are "financial deregulation" and "the return of traditional industries". The securities and investment industry accounts for the highest proportion of funds, which corresponds to the governing agenda of increasing "relaxing financial supervision" and reducing compliance costs to enhance the overall profitability of the industry. The trend of the return of traditional industries is obvious. Trump has reshaped the trend of traditional energy, and has repeatedly proposed to seek "maximization of fossil fuel production", naturally gaining support from the oil and gas industry and the aviation transportation industry. At the same time, Trump's tax reform and reduction of operating costs in the real estate industry are also supported by real estate developers.

VI. "Trump 2.0 Trade", why are US stocks and commodities adjusting?

From 2017 to 2020, during Trump's term of office, US stocks performed well due to improved demand, US bonds first fell and then rose under the influence of the Fed's policies, the US dollar index first fell and then rose and then fell overall, gold performed outstandingly, and crude oil was weak. The technology and medical sectors have long had excess returns.

Trump's tax cuts and lenient fiscal policy significantly boosted domestic demand. At the same time, by relaxing supervision and optimizing corporate cost structure, corporate profitability has been further enhanced. From 2017 to 2020, the S&P 500, Dow Jones and Nasdaq achieved growth of 67.77%, 54.87% and 139.42% respectively, and the technology and medical sectors have long had excess returns. In 2017, after Trump took office, tax cuts, relaxed supervision, and strengthening infrastructure policies significantly boosted market confidence; In 2018, The Sino-U.S. trade frictions and the Fed's interest rate hikes intensified market concerns about liquidity tightening, and the rise in U.S. stocks converged; In 2019, the Fed's interest rate cuts came, and Trump's "tax reduction and employment act" continued to boost strong economic growth; In 2020, in order to ease the impact of the epidemic on the economy, the Fed restarted "zero interest rates + quantitative easing", coupled with Trump's massive fiscal stimulus, the U.S. stocks rose sharply.

Why are US stocks and commodities about to enter the "Trump 2.0" phase and adjust?

We believe there are three reasons. First, the self-consistency of Trump's policies is based on "misalignment", but the pace of policy implementation is still highly uncertain, which makes the "Trump agenda" seem contradictory, and the uncertainty of US domestic policies over the next four years is increasing. For example, in the 20 commitments in the Republican Party's 2024 governing agenda, both "stop outsourcing and make the United States a manufacturing superpower" and "maintain the US dollar as a world reserve currency" are mentioned. Obviously, the status of the US dollar as a world reserve currency is based on the positioning of the United States as a consumption country. Once the United States turns to manufacturing, the status of its reserve currency is highly likely to be weakened, unless there is a priority relationship between the two, first reshores manufacturing to the United States and then re-transfer it externally.

Secondly, the political cycle of the US stock market predicts that if Trump is elected, there will be an annual adjustment of the US stock market in 2025-2026, and overseas investors will try to take profits after repeated highs. In multiple reports such as "Has the Adjustment of the US Stock Market Ended?" (April 24, 2024), we pointed out that there are three political cycle rules for the US stock market: 1) The US stock market will rise or even soar during the reelection year; 2) The US stock market performance is also very stable during the stable period of the US president's first term, the third and fourth years of the first term, and the first and second years of the second term (if reelected), and there will be no annual-level adjustment; 3) The year when the US stock market falls is concentrated in the first two years of the term of each president. The main reason why the US stock market did not decline before Obama's term was that the US stock market had already suffered a severe setback in 2008. Returning to the present, the US stock market has repeatedly hit new highs this year, and overseas investors already have the demand to take profits before the election; in addition, if Trump resumes office, based on the third political cycle rule, the US stock market may experience at least one heavy setback in 2025-2026.

Finally, interest rate cuts confirm economic slowdown.

As stated in the report "Will the Federal Reserve cut interest rates this year?", we have been emphasizing that interest rates will not be cut before the election since June, mainly because interest rate cuts can easily cause secondary inflation expectations, which is detrimental to Biden's election. Now that Biden's reelection prospects have greatly reduced, it is even more necessary to weigh the pros and cons of interest rate cuts from the perspective of party interests. Fundamentally, the current real interest rate in the United States is significantly higher than 1%, and various indicators are gradually weakening, and it is reasonable to cut or not to cut interest rates. From the perspective of the two-party game, Trump's three major propositions "imposing tariffs, reducing income tax, and opposing immigration" all contribute to inflation, so if interest rates are cut ahead of schedule this year, it may hinder the implementation of the above policies by the Republican Party in the future. If the weak pattern continues in August-September, the FOMC in September is expected to implement interest rate cuts. However, interest rate cuts are equal to confirming the slowdown of the U.S. economy, that is, curbing the molecular end of US stocks. However, the current overvaluation of the US stock market cannot be simply digested by cutting interest rates. Therefore, interest rate cuts will actually exacerbate the pressure of the US stock market adjustment.

Reference materials:

[1] https://www.project2025.org/

[2] https://prod-static.gop.com/media/RNC2024-Platform.pdf

[3] https://www.ft.com/content/44493fa9-d8f2-4407-94ac-a072c1976ca2

[4] https://www.donaldjtrump.com/agenda47

[5] https://www.bloomberg.com/features/2024-trump-interview-transcript/

[6] https://www.nbcnews.com/politics/2024-election/trump-vice-president-running-mate-pick-jd-vance-rcna157485

[7] https://www.congress.gov/member/j-vance/V000137 [8] https://www.nytimes.com/2024/07/15/us/politics/jd-vance-abortion-immigration-issues.html

Editor/Emily