By BENJAMIN BRAUN & CEDRIC DURAND*
Donald Trump's return to office has exposed the fault lines within the coalition that contributed to his victory
Contradictions in Donald Trump's support base
The decline of the hegemonic country, according to historian Fernand Braudel, has historically come with financialization. Faced with declining profitability in production and trade, capital owners increasingly transfer their assets to finance. According to Braudel, this is a “sign of autumn,” a time when empires “transform into a society of rentier investors looking for anything that will guarantee a quiet and privileged life.”[I]
This specter of Braudelian decline has haunted key figures in Donald Trump’s second administration. Here’s what the now-Treasury Secretary Scott Bessent asked himself during the campaign: “What do all the old reserve currencies have in common?”. “Whether it’s Portugal, Spain, the Netherlands, France, the United Kingdom… How did they lose their reserve currency status?”
Here’s how he responded: “These countries have become highly leveraged in their finances and so they can no longer support their militaries.” Although Bessent, a former hedge fund manager, officially denies that there is a dollar depreciation program, speculators have been operating in a way that is driving down the U.S. exchange rate since Donald Trump took office in January.
Secretary of State Marco Rubio authored a 2019 report titled “American Investment in the Nineteenth Century.” In the report, he criticizes Wall Street for maintaining a rule that puts “shareholder compensation” first. This rule, which “privileges quick cash returns to investors, shapes business decision-making in the short term rather than building long-term corporate capabilities.” These officials’ views on the privileges accrued by finance are shared by self-described Republican “populists” like Josh Hawley.
Thus, a certain residual hostility towards Wall Street ideologically marked the first months of Donald Trump’s second term. On the one hand, the tariffs imposed on “Liberation Day” shook the financial markets; on the other, Wall Street retaliated with threatening financial panics, which served to discipline the White House.
Whether a coalition of populists united under the MAGA banner, which constitutes Trump’s electoral base, is sustainable will be a central question for his second term. For example, it expects a rise in living standards, as well as a resurgence of secure jobs, to come through a revival of US manufacturing. These populists believe that this will come through tariff policy and a tightening of the labor market due to the deportation of illegal immigrants.
Fossil fuel and defense-oriented technology companies like Palantir and Anduril are certainly happy with militarized nativism. But Donald Trump’s trade policies clearly hurt private finance and big tech. And these are two sectors that have also consistently supported Donald Trump, so much so that they now expect to be rewarded. By attacking them, Donald Trump may be alienating certain factions of American capital that helped put him back in office.
For these factions, the decline of the US is relative and could be managed more smoothly, as has been done in Japan. As Giovanni Arrighi noted as early as 1994, finance always mediates and thus continually benefits from hegemonic transitions.[ii] Even as their hegemony is weakening, the asset management titans are profiting both from rebalancing portfolios in the US and from investing large amounts of capital in fast-growing Asian economies, China in particular.
Large information and communication technology companies, in turn, aim to control the generation and dissemination of knowledge; therefore, they also want to strongly influence economic coordination.[iii] They have a lot to lose from geoeconomic fragmentation as it can prevent them from accessing data, can reduce their network effects, can increase the cost of their material infrastructure and, finally, can pressure for digital sovereignty policies by other countries in the world.
In its efforts to revive the American Empire, the Trump administration will therefore have to delicately balance the interests of nativists focused on industrial recovery with the interests of factions of capital that need to act in the wider world. Navigating these competing agendas will pose a huge challenge to the longevity of the coalition underpinning the Trump administration – and to the stability of the global financial system as a whole.
Private finance supports Donald Trump
Already in the 2016 election, a dramatic split occurred among the capitalists who dominate Wall Street. On the one hand, the too-big-to-fail banks and the “public equity” asset managers [i.e., pension funds that supposedly serve the general interest] aligned themselves, including rhetorically, with the Democrats. On the other, the “private equity” capitalists—who invest in “private equity” (private equity[iv]), venture capital and hedge funds (hedge funds) – have already supported, even vocally, Donald Trump’s first candidacy for president.
It is worth remembering here that this division also manifested itself in the United Kingdom, where a group of private equity and hedge fund magnates gave their support to Brexit, while traditional bank-centered finance tended to support the camp that advocated remaining in the European Union.[v]
Asset managers, who operate like private-sector securities, want only two things: tax breaks and deregulation. The most important factor behind the relentless rise of private-sector finance chiefs in the Forbes 400 rankings is the tax loophole for earnings from trading fees. Over the past quarter-century, these earnings—that is, the performance-based compensation of private-sector fund managing partners—have totaled, quite impressively, $1 trillion.[vi]
In 2010, Black Obama tried – and failed – to close that loophole. Blackstone CEO Stephen Schwarzman found it appropriate to compare that effort with the invasion of Poland by Nazi Germany. When the edition of Inflation Reduction Law of the Joe Biden administration, Senator Kristen Sinema made a last-minute demand in the US Senate: she proposed that the tax loophole simply be maintained. This is how the US Democrats completely failed to raise taxes on big corporations and the richest.
On the deregulation front, the biggest prize for the strictly private finance faction is access to the vast pool of individual assets associated with retirement savings. Currently, private equity and hedge funds raise money from the super-rich and institutional asset owners—but not from the mass of wage earners.
By far the largest group of clients for these funds are defined-benefit pensions in both the public and private sectors. Since the 2008 financial crisis, however, individual defined-contribution plans have grown twice as fast as their collective counterparts. Today, about $10 trillion is held in these two types of plans, which are run by the stalwarts of the liberal Wall Street faction: firms like BlackRock, Vanguard and State Street.
In its ongoing quest to gain access to this massive amount of money, the private finance faction has scored its first victory under Trump I. In 2020, Labor Department Undersecretary Eugene Scalia, son of the Supreme Court’s top conservative justice, Antonin Scalia, signed a white paper stating that existing rules already allowed sponsors of such private equity funds to take advantage of the retirement funds of millions of Americans.
Sure, a mere letter from the Department of Labor, as opposed to a rule change in financial regulatory law, might be a weak mandate, but it was nonetheless significant. Shortly after Donald Trump took office for the second time, the titans of private equity redoubled their efforts to tap into that spigot. They believe that opening it up could double the demand for their funds.
There’s no mystery about the “private participation” mandate to gain access to the 60 million 401(k) plan participants[vii] that exists in the U.S. The line of attack is clear: By limiting their investment options to publicly traded stocks and bonds, they argue, regulators are allegedly depriving 401(k) plan holders of diversification and higher returns. Marc Rowan, Apollo’s chief executive, complained that 401(k) funds “are invested in daily liquidity index funds, primarily the S&P 500.”
Larry Fink, CEO of BlackRock, which recently started buying infrastructure assets, lamented that these assets are “in closed private markets, locked behind high walls, with gates that open only to the largest or wealthiest market participants.” BlackRock’s entry into “private equity” represents a broad shift. And it is occurring among so-called public equity asset managers. This is happening as access to “private equity” returns (private equity) is sold to American retirement savers as a step toward greater financial democracy.
In reality, this “private equity” sector – called the “billion-dollar factory”[viii] by economist Ludovic Phalippou — is seeking a bailout. Since 2006, private equity funds’ investment returns have failed to outperform the stock market — even as their number of billionaires has risen from three in 2005 to 2020 in XNUMX. In recent years, these buyout funds have struggled to offload some investments, rather than passing them on like a game of hot potato.
By 2024, the private equity business has shrunk for the first time in decades. Corporate dealmaking, which is in the spotlight during the Biden years, offers a path back to growth. “The industry has been banging the drum for a return to M&A as a way to justify in part the amount of capital that has been raised over the last few years,” the chief investment officer of alternative asset manager Sixth Street told a group of investors recently. “The problem is that people paid a lot for assets between 2019 and 2022, and now no one wants to sell those assets without a decent return.”
With unrealistic return expectations piling up, the surest way to ensure a profitable exit for current investors is to bring in new investors. Bringing in $1 trillion of “dumb investment” money—invested in 401(k) plans—as the industry sees it, would allow pension funds, sovereign wealth funds, and large individual wealth holders to exit their holdings at a profit. Smaller savers would be left holding this bag of overvalued assets. In other words, a Ponzi scheme.
Realignment of large technology companies
As finance split into two political factions, Silicon Valley’s elite marched to the right in surprising unity. For three decades, tech entrepreneurs and private financiers had been able to “move fast, break the chains” without having to fear major government impediments. Having gotten it all so easily, these predators decided that Joe Biden’s administration, as well as the Democratic Party’s antitrust policies, needed to be stopped.
In this sense, they rallied around Trump’s banner, believing that it would restore the antitrust status quo that prevailed under Barack Obama. Venture capitalist Marc Andreesen spoke of an anxiety felt by leaders in this sector; he indicated that they sensed a “social revolution” taking place in the technology centers of universities and Silicon Valley; that there was a “rebirth of the New Left” and it was radicalizing the workforce.
Quite clearly, he says, companies are being hijacked by the engines of social change, of social revolution. The employee base is supposedly going feral. In the early Trump era, there were instances where several companies felt they were only hours away from violent riots on their own turf, started by their own employees.
Silicon Valley liberalism, it seems, was a temporary phase tied to a period of maximum liquidity and minimum regulation of US capitalism. Then the Covid pandemic hit, and the government provided substantial handouts to workers. Some workers felt empowered to voice new demands. At the same time, the most activist arm of the Biden administration, Lina Khan’s Federal Trade Commission, sought to apply antitrust law to regulate big tech companies.
Add to this the effort made by Biden’s Treasury Secretary, Janet Yellen, to create an international coordination on corporate taxation, as well as the Democratic president’s rhetorical support for union mobilization. Put it all together and you can see why Andreesen saw this as “a huge moment of radicalization.” It was also why he spent a huge amount of time in group discussions that promoted class consciousness among billionaires.
These are the circumstances that led Big Tech to join private finance as the second faction of capital to rally behind Trump’s return. The Inauguration Day gathering of Big Tech leaders sealed that alliance. They were quickly rewarded with a flurry of executive orders that eliminated public safety protections for AI companies and regulatory hurdles for cryptocurrency companies.
This was in stark contrast to the Biden administration’s confrontation with Facebook’s plan to create a global payments system. Called Libra, it was launched in 2019 and shelved in 2022; however, the new administration now appears prepared to support the cryptocurrency sector with the full faith and backing of the state.
Crypto interests have adopted the “private equity” playbook, seeking to attract money from pension funds. Since Donald Trump’s reelection, twenty-three states have introduced legislation to allow public entities to invest in cryptocurrencies. In several cases, the bills specifically target public pension funds.
The US National Innovation in Alternative Currencies (GENIUS) Act aims to provide a permissive regulatory framework for such alternative currencies and has already cleared a major hurdle in the Senate. DOGE’s attack on financial regulatory agencies, Securities Exchange Commission (SEC) to the Consumer Financial Protection Bureau (CFPB), has weakened oversight, increasing incentives for risk-taking throughout the financial system. Lo and behold, it does not stop Elon Musk’s plan to create an X-money Account in partnership with Visa. The seeds for a much larger version of the Silicon Valley Bank crisis have thus been planted.
The bottom line is that the severe financial strain that has roiled the new administration’s early months may be as much a feature as an internal flaw of the president’s corporate coalition. The ambitions of Silicon Valley’s new elite are not just to cripple the federal bureaucracy but also to dethrone Wall Street.
The Federal Reserve's Dilemma
This is how we arrive at the decisive referee in any confrontation involving finance and the State: the Federal Reserve. Despite having gone through a major financial crisis in 2008, the Fed has enjoyed a solid monetary dominance in US macroeconomic policy. Once the inflationary process has restarted, fiscal policy takes a back seat and monetary policy begins to offer a promising instrument for financial and price stability.
The high-pressure economy projected under Yellen's “go-big-go-early” strategy in response to the pandemic-induced drop in economic activity, combined with rising prices due to supply chain delays also during the pandemic, provided the rationale for the Fed tighten monetary policy, aiming to deflate financial markets and labor markets.
Under Trump II, however, the Federal Reserve is on a much more dangerous path. Donald Trump’s tariffs, as well as a weakening dollar, raise the clear possibility of a return to inflationary pressures. A competent and disciplined administration could perhaps prevent price increases on essential items through strategic stockpiling and price controls.[ix] However, the current administration is neither competent nor disciplined. DOGE’s systematic attack on certain departments of the federal government only reinforces the impression that the burden of containing inflation falls solely on the Fed.
Now Jerome Powell faces a dilemma. If inflationary pressures rise under the twin attacks of tariffs and a weaker dollar, the Fed should raise rates as it always does. Yet the Fed is already allowing government bond yields to rise.
But deepening financial stress from higher-than-expected interest rates and weaker-than-expected income growth—car owners are missing loan payments at the highest rate in three decades—may force the Fed to step in to support asset values, as it did in late 2019 and early 2023, through emergency lending and asset purchases. Moreover, Donald Trump and Bessent have made clear that they want lower interest rates on U.S. government debt—a prospect that greatly complicates any plans for monetary tightening.
Powell’s dilemma is all the more pressing because the largest asset of all appears to be at stake: the status of U.S. Treasuries as a global safe haven asset, and thus the status of the U.S. dollar as a global reserve and financing currency. Official reserve managers’ appetite for U.S. bonds has been waning for years, as the dollar’s share of global reserves has fallen from 71 percent in 2000 to 57 percent in 2024.
Some signs of growing investor concern about such securities emerged as early as February, when the chief investment officer of French asset manager Amundi noted, in response to White House orders weakening securities regulation, that “more and more things are… certain things are being done that could start to erode confidence… in the US system, in the Fed, in the US economy.”
In the weeks that followed, this veiled threat began to materialize with a sharp correction in equity markets and, more worryingly, a rise in US Treasury yields. Following Trump’s announcement of “reciprocal” tariffs on April 2, the US experienced something extraordinary: capital flight. If the Fed is pressured to allow real interest rates to fall as inflation rises, capital flight on a much larger scale will occur – this is therefore a real possibility.
The goals of eliminating the US trade deficit while preserving the dollar’s reserve currency status are seen as incompatible. Since Robert Triffin’s work in the late 1950s on the “dollar glut,” international monetary economists have understood that global economic growth through trade depends on the availability of reserves. In the absence of a new international reserve standard, this is seen as placing a requirement on an ample supply of dollars, provided to the rest of the world through perpetual US trade deficits.
In a world of unlimited gross cross-border financial flows, but in which transactions were mediated by the euro, for example, global liquidity would no longer necessarily be linked to US current account deficits. Since such a world does not yet exist, the US government's ideas of decoupling dollar dominance from current account deficits seem unconvincing.
These ideas specifically include “promoting the development and growth of legal, legitimate, dollar-backed cryptocurrencies worldwide.” Eric Monnet has called this “crypto-mercantilism.” He calls it a strategy designed to extend, rather than undermine, the dollar’s dominance in the global monetary system, since the value of such currencies will be backed by dollar assets.
Pitfalls for ruling class rule
Donald Trump’s return to office has exposed the flaws within the coalition that contributed to his victory. The grassroots factions of MAGA have supported Trump’s nationalist stances. But they have little common cause with mainstream finance and the tech sector’s interests in open global financial and digital markets. Tech and MAGA could meet halfway on the crucial issue of reviving the US industrial base. That would jeopardize the strong dollar foundation on which mainstream and private finance depend for their primacy.
Although, as Steve Bannon says, many of the MAGA supporters are on Medicaid, the federal budget recently passed by the now GOP-controlled House includes sweeping welfare cuts that are being championed by private finance. Despite the rhetoric, these spending cuts do not offset tax cuts: government deficits will continue to be large, and the Trump administration’s tariff and deregulation agenda threatens financial stability.
State theorists have long argued that “the ruling class does not rule.” To borrow Fred Block’s apt phrase, liberal democracies have been characterized by a division of labor between capitalists, who run their corporations, and “state managers,” who run the government.[X] Since individual capitalists tend to have difficulty seeing beyond what goes on in their own pockets, their fortunes depend on the success of state managers in sustaining the conditions for the social, ecological, and financial reproduction of capital.
According to Block, the capitalist state seeks the survival of the system through the aggregation of disparate interests. This raises the question: will the current US administration, in its extreme form, be able to aggregate the interests of the multiple competing factions supporting Trump II? Tariffs, on the one hand, affect the interests of the US technology industry in China, but on the other, they appease MAGA nationalists. Combined with an internationally orchestrated devaluation of the dollar, they would go a long way toward sustaining the boom in investment in manufacturing brought about by the Biden administration’s economic measures (dubbed Bidenomics).
Financial deregulation and opening up access to 401(k) plans to private participation could be combined with reversing the high-income tax rate from 37 percent to the pre-2017 level of 29,6 percent, as suggested by Donald Trump during the House debate on the federal budget. Whether such a consensus will emerge, however, remains to be seen. Just months after inauguration, the antinomies of Donald Trump’s (dubbed Trumponomics) are manifesting without obvious resolution.
*Benjamin Braun is a political scientist and senior researcher at the Max Planck Institute.
*Cedric Durand is a professor at the University of Sorbonne Paris-North. Author, among other books, of Techno-Féodalisme: Critique de l'économie numérique (Discovery).
Notes
[I] Braudel, F. (1984). Civilization and capitalism, 15th-18th century. University of California Press, pp. 246 and 266-267.
[ii] Arrighi, G. (1994). The long twentieth century: Money, power, and the origins of our times. Verso Books.
[iii] Durand, C. (2024). How Silicon Valley Unleashed Techno-feudalism: The Making of the Digital Economy. Verso Books
[iv] NT: in Portuguese, “private equity” can be translated as “private equity” to highlight that it involves investing in shares of companies not listed on the stock exchange.
[v] Marlène Benquet and Théo Bourgeron, Alt-Finance: How the City of London Bought Democracy, Pluto: London, 2022.
[vi] Phalippou, L. (2024). The Trillion Dollar Bonus of Private Capital Fund Managers (SSRN Scholarly Paper No. 4860083). https://papers.ssrn.com/abstract=4860083
[vii] NT: A 401(k) plan is a retirement savings plan, typically offered by employers in the United States, that allows employees to contribute a portion of their salary to an investment account, often with the option for the employer to contribute as well. The invested funds grow tax-deferred and are taxed only when withdrawn in retirement.
[viii] Ludovic Phalippou, “An Inconvenient Fact: Private Equity Returns and the Billionaire Factory,” The Journal of Investing,December 2020, 30 (1) 11 – 39.
[ix] Weber, IM, Lara Jauregui, J., Teixeira, L., & Nassif Pires, L. (2024). Inflation in times of overlapping emergencies: Systemically significant prices from an input–output perspective. Industrial and Corporate Change, 33(2), 297–341. https://doi.org/10.1093/icc/dtad080
[X] Block, F. (1987). The ruling class does not rule: Notes on the Marxist theory of the state. In Revising state theory: Essays in politics and postindustrialism (pp. 51–68). TempleUniversity Press.
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