This article is from the "Gelonghui" column: Tao Chuan;

Author: Minsheng Macro Team

"Actions speak louder than words," this point may be particularly prominent in political affairs such as the U.S. presidential election. After "getting tired" of the campaign declarations and interviews of both sides, November to December will bring an important observation window - how the new president will form his own cabinet team. What is currently more worth paying attention to is undoubtedly the personnel changes under Trump's administration.

In terms of time, it is expected that after the election this year, most cabinet officials will be officially nominated in November to December, and will take office around February to April 2025. However, observing the nominations can grasp the important trends.

Key focus: U.S. Secretary of the Treasury, Trade Representative. The cabinet members of Trump 1.0 government have been tumultuous, with a high turnover rate. Treasury Secretary Mnuchin and Trade Representative Lighthizer, who took office in 2017, have persisted until the end of Trump's term, assisting Trump in implementing tax reduction legislation, amending the Dodd-Frank Act, and imposing tariffs.

The selection of the new Treasury Secretary will determine how to address the "debt ceiling" issue next year, how to continue tax cuts and deregulation. Currently, there are high expectations for John Paulson and Scott Bennett; while the Trade Representative will determine the strategy and pace of U.S. tariffs in the next 4 years, Lighthizer's views will be crucial.

Finally, how will Musk enter politics, and what kind of impact will the combination of technology and politics have? We believe that the most likely way is to work as the head of a presidential committee or as an expert, aligning with Trump's "mutual benefits" approach. The economic impact is mixed, with a positive effect on technology stocks and digital currencies at the market level. The more complex aspect may be potential conflicts of interest, especially in the areas of trade and tariffs.

1. What is the "cabinet" of the U.S. government?

The United States Constitution divides the government into three branches: 1) the legislative branch, including the Senate and the House of Representatives, with members elected by voters; 2) the executive branch, led by the President, with core officials of the executive institutions nominated by the President and confirmed by the Senate; 3) the judicial branch, led by the Supreme Court, with justices also nominated by the President and confirmed by the Senate.

The executive institutions led by the President of the United States are divided into three parts: the Executive Office of the President, the Cabinet, and independent agencies.

1. Executive Office of the President (EOP): Comprised of the President's immediate staff, including the White House Office, National Security Council, Office of the U.S. Trade Representative, Council of Economic Advisers, Office of Management and Budget, Office of Science and Technology Policy, Office of National Drug Control Policy, Council on Environmental Quality, and more.

2. Cabinet: Consisting of three parts - the Vice President, the heads of 15 executive departments, and other Cabinet-level officials.

The Vice President supports the President's work and assumes the role of President if the President is unable to serve for various reasons. The Vice President also serves as the President of the Senate and casts a tie-breaking vote in the event of a 50-50 deadlock.

The Secretary of State, Secretary of the Treasury, Secretary of Defense, and Attorney General are considered the 'four most important positions in the U.S. Cabinet' aside from the Vice President, usually being older and more senior than other Cabinet officials.

The President also selects some key other agencies (such as those from the EOP or independent agencies) as 'Cabinet-level agencies,' with their leaders being 'Cabinet-level officials.' The establishment of 'Cabinet-level officials' varies depending on the President, for example, the Chairman of the Council of Economic Advisers was not Cabinet-level during the Trump administration, but was categorized as such by Biden in 2021 (as shown in later Figure 3).

3. Independent Agencies

Independent executive institutions that do not belong to the president's cabinet or the Executive Office of the President (EOP) include the Environmental Protection Agency (EPA), the Securities and Exchange Commission (SEC), the National Archives and Records Administration (NARA), the Central Intelligence Agency (CIA), the Small Business Administration (SBA), and so on.

The cabinet members during Trump's first term were tumultuous, while those during Biden's term were relatively stable.

During Trump 1.0, out of the 15 cabinet positions, 9 experienced mid-term changes, with the Secretary of State transitioning from Tillerson to Pompeo in 2018. The turnover of 'cabinet-level officials' was also frequent. Trump was dedicated to ensuring top officials in the administration were highly aligned with his policy positions.

The president's adjustments and manipulation of cabinet members often reflect the focus of his governance.

Comparing the arrangement of cabinet members between Biden and Trump (refer to Graph 3):

1) Trump revoked the 'cabinet-level' status of the Chairman of the Council of Economic Advisers, a position usually held by a Ph.D. economist who provides economic analysis to inform policy decisions, rather than formulating policies themselves.

2) In 2017, Trump promoted the Director of the Central Intelligence Agency (CIA) to a 'cabinet-level' position, whereas Biden only announced the elevation of the CIA Director to the 'cabinet level' in July 2023, citing the latter's significant role in addressing the Russia-Ukraine conflict.

3) In 2021, Biden elevated the Director of the Office of Science and Technology Policy (OSTP) to cabinet level for the first time, emphasizing the importance of science and technology policy. This position is responsible for formulating science and technology policies, serves as the president's chief science advisor, and does not require Senate confirmation.

2. Potential candidates for the cabinet if Trump wins the election

1. Nomination and confirmation time for important official positions

In addition to the Vice President and White House Chief of Staff, appointments to executive positions require Senate approval. The Senate usually shows great respect for the President, and historically, the vast majority of cabinet nominations have been smoothly approved. Especially in this year's election, the Senate is expected to be overwhelmingly controlled by the Republican Party.

After the 2016 election day, Trump officially announced the nominees for each cabinet position, averaging 4.6 weeks from the election day to the final Senate approval vote for cabinet officials, and averaging 14.7 weeks. This speed was faster than Biden's cabinet formation in 2020. It is expected that after this year's election, most cabinet officials will be officially nominated in November to December, and will take office around February to April 2025.

2. Secretary of the Treasury

In 2017, Trump chose Steven Mnuchin as the Secretary of the Treasury. He stayed on until the end in the Trump administration despite frequent personnel changes, assisting Trump in tax cuts, easing financial regulations, and imposing tariffs.

If Trump is elected, 2025 will inevitably face new debt ceiling negotiations, as well as negotiations for the extension and revision of the 2017 Tax Cuts and Jobs Act.

For the new Secretary of the Treasury, it is expected that they will hold economic beliefs highly aligned with Trump: supporting tax cuts for businesses and individuals; imposing tariffs, as Trump recently mentioned on October 15th that 'tariffs are the most beautiful word in the dictionary'; and easing corporate and financial regulations.

Focus on the treasury secretary candidates, John Paulson and Scott Bessent.

John Paulson, a hedge fund titan and billionaire, became a financial legend for shorting the subprime mortgage market in 2007. In a recent interview, he stated: interest rates should be reduced to around 3% or 2.5% by the end of next year, supporting tax cuts to stimulate the economy, and warned that Harris' tax policies could lead to an economic recession and market crash, asserting that tariffs will not cause inflation. His economic policy stance is essentially aligned with Trump's economic vision: tax cuts domestically and tariffs on foreign imports.

Scott Bessent, an outstanding investor and financial expert, strongly supports Trump's economic vision and serves as Trump's economic advisor. In a recent interview, he defended Trump's policies on the dollar and tariffs, stating that Trump will not adopt policies that weaken the dollar's position and that tariffs are a negotiating strategy that will not reduce trade volume.

Other potential treasury secretary candidates are shown in Figure 7.

3. U.S. Trade Representative

During Trump's first term, Robert Lighthizer served as the U.S. Trade Representative. He was sworn in in May 2017 and held the position amidst government upheaval until January 20, 2021.

Trump praised Lighthizer as intelligent and sharp, fully acknowledging his professional knowledge and effectiveness in trade negotiations. If Trump returns to the White House, Lighthizer may be nominated again as the Trade Representative in 2025, and may even be nominated for positions such as Secretary of Commerce, Economic Advisor, Chief of Staff, among others.

Apart from Lighthizer, potential nominees for Trade Representative include: Jamieson Greer and Bill Haggerty. Greer served in the Trade Representative's office during Trump's first term as Lighthizer's trusted assistant, continuing Lighthizer's policy principles. Haggerty is a seasoned figure from the old Bush administration, a Republican establishment figure, who served as Trump's Ambassador to Japan in the first term and received praise for vigorously promoting the U.S.-Japan trade agreement and WTO reform, currently serving as a Senator from Tennessee.

Secretary of State

The United States Secretary of State, also known as the Secretary of State of the Cabinet, formerly the Secretary of State of the United States, is responsible for formulating the foreign policy of the US government. During Trump's first term, he appointed two Secretaries of State: Tillerson (Rex Tillerson) and Pompeo (Mike Pompeo).

Tillerson, former Chairman and CEO of Exxon Mobil, took office as Secretary of State in February 2017. In October 2017, relations between Tillerson and Trump deteriorated, with major differences arising on diplomatic issues such as the Iran nuclear deal and North Korea's nuclear program, leading to mutual criticism. Tillerson was announced dismissed in March 2018.

Pompeo served as Director of the Central Intelligence Agency in January 2017 and became Secretary of State in April 2018. During his tenure, he was one of Trump's most loyal supporters, adhering to the principle of 'America First' and maintaining a high degree of alignment with Trump's foreign policy positions.

The selection of the Secretary of State in 2025 is highly anticipated and will impact the developments in issues such as the Russia-Ukraine conflict, NATO, and Israel. If Trump wins the election, Pompeo will remain a strong competitor. Other possible contenders, as shown in Figures 9, may compete not only for the Secretary of State position but also for other senior positions related to national security, such as Secretary of Defense, Director of the Central Intelligence Agency, National Security Advisor, etc.

Secretary of Defense

The Department of Defense is the executive department of the US armed forces, and the Secretary of Defense exercises authority over the military's command and control. During Trump's first term, he appointed three Secretaries of Defense: James Mattis, Mark Esper, and Christopher Miller (Acting Secretary).

Mattis took office as Secretary of Defense in January 2017. In December 2018, Trump announced the immediate withdrawal of US troops from Syria, a move strongly opposed by Mattis, leading to his resignation.

Esper took office as the Secretary of Defense in July 2019. In November 2020, Trump announced the dismissal of Esper, with the underlying reason being significant disagreements between Esper and Trump on issues such as the withdrawal of troops from Afghanistan and northern Syria.

Miller served as Acting Secretary of Defense for about 3 months (from November 2020 to January 2021) and may be nominated again in 2025. Other potential candidates for Secretary of Defense are shown in Figure 10.

The Meaning of Musk's 'Entry into Politics'

What kind of impact will the combination of technology and politics have? This could be one of the biggest market uncertainties as Musk openly supported Trump, even directly participating in the election, especially as Trump's chances of winning increased. We also need to address and consider this issue:

In what capacity will Musk 'enter politics'? We believe Musk is unlikely to join the Trump administration as a department head or presidential advisor. The former requires extensive legal and procedural modifications, and the latter would mean Musk might need to resign from positions at Tesla, SpaceX, and other companies. Musk is more likely to work as the head of a Presidential Commission or as an expert:

A Presidential Commission is a temporary or permanent advisory group established by the U.S. President, specifically to address certain national issues, provide expert advice, or investigate specific concerns. These commissions are composed of experts in various fields, conducting research, gathering public opinions, and providing policy recommendations to assist the President in decision-making.

However, the commission can only provide recommendations and does not have the power to formulate policies. Therefore, even if Musk were to establish a 'Government Efficiency Commission' in the future, his administrative influence would be weaker than in the first two scenarios, but the constraints would be lesser.

What functions would Musk perform? 'Benefit from each other,' 'killing two birds with one stone.' From Trump's perspective, Musk is an important sponsor and supporter of the campaign, and in terms of policy, Trump also hopes to achieve some degree of inflation control through deregulation and cutting unnecessary government expenditures. From Musk's point of view, government regulations could be one of the biggest obstacles for future development in the tech industry, easing regulations would be bullish for the development of Tesla, SpaceX, and the current AI trend.

What possible impacts could this bring? Economically, the situation is mixed, with a positive outlook for technology stocks and digital currencies in the market. From an economic perspective, loosening regulations in the medium to long term could release certain institutional dividends, beneficial for boosting economic growth; however, it could also directly impact government employment (Elon Musk, known for his skill in layoffs, drastically reduced the company's staff from about 7,500 to less than 2,000 after acquiring Twitter in 2022). It is worth noting that the government's employment weight in new non-agricultural sectors is significantly increasing.

From a market perspective, there is a large number of Musk's followers in the digital currency world, and Musk's involvement could serve as a "booster" for digital currencies; his intentions to loosen restrictions on technology and future industries are basically common knowledge, and his role will undoubtedly be beneficial for technology and growth stocks.

Of course, another issue of concern is the potential conflict of interest. Musk's political involvement and regulatory easing are beneficial for technological breakthroughs and future industries, which could be a "clear signal," but on the other hand, how to handle issues between the supply chain of his enterprises and potential trade tariffs becomes quite delicate. Whether to "juggle both" or to "cut the losses but keep the commander," this issue deserves special attention.

Risk warning: US election progress exceeds expectations; US economic deterioration exceeds expectations; unexpected changes in Trump's policy philosophy.

Note: This article is the "Trump's Cabinet: 2.0 Observation Guide" released by Minsheng Securities on October 27, 2024. Analysts: Shao Xiang, Pei Mingnan

Editor/ping