Dialogue with Lu Zhe, Chief Economist of Dongxing Securities Co., Ltd.: Is Trump 2.0 overpriced?

How does working at the World Bank headquarters in Washington help sell-side research?

Lu Zhe: During my time working overseas, we were able to quickly absorb mature economic analysis frameworks. (Because) we often collaborated with institutions such as the Federal Reserve, European Central Bank, Bank for International Settlements, and IMF on project activities or research. These institutions have mature models that have been refined over many years; for example, the European Central Bank has conducted in-depth research on its own debt issues. We were able to jointly use and discuss these models, allowing me to master some mainstream and cutting-edge economic analysis methods in a short period of time.

On the other hand, I learned to study Chinese issues from a global perspective during this experience. In international organizations, there are relatively few Chinese scholars engaged in research. In project groups, scholars from the United States, Europe, or Latin America would ask me questions about China. When discussing Chinese issues with overseas scholars, I found that their focus varied: some concentrated on China's debt issues, some focused on capital markets and stock markets, while others were concerned about China's ESG system. Understanding how overseas investors and scholars pay attention to and understand the Chinese market has provided me with important insights and experiences for my current work in dealing with global investors, explaining the Chinese economy, and telling the story of the Chinese economy.

Is Trump 2.0 currently overpriced?

Lu Zhe: I believe that so far, the market has not fully priced this in, or rather: the biggest characteristic of the “Trump Trade 2.0” is uncertainty, and the greatest certainty is the uncertainty itself.

Trump's policies have self-contradictions in some aspects, or have contradictory effects on the economy. For example, tariff policies and immigration policies may raise inflation, leading to the effects of tightening monetary policy, which affects the Federal Reserve's ability to cut interest rates and raises concerns about negative impacts on the U.S. economy. However, the Trump administration is also implementing industrial policies and tax cuts, which are strong fiscal policies that have a positive impact on the U.S. economy. Therefore, the key to the “Trump Trade” lies in the sequence of different policy implementations, which may affect different trading outcomes.

If the market first sees the Trump administration implementing domestic tax cuts, followed by overseas tax increases after a period of time, then we may first trade a strong dollar, trading on expectations of U.S. economic recovery or non-recession. Conversely, if we first see strong immigration management and overseas taxation, then the market may first trade inflation and tightening monetary policy, and only then trade on the resilience of the U.S. economy.

Will Trump 2.0 promote the process of de-globalization?

Lu Zhe: From the perspective of the Trump 2.0 era, its impact on de-globalization is indeed more direct. The Trump administration has a clear isolationist tendency, preferring to withdraw from international organizations such as the WTO and IMF, and favors bilateral relationships over multilateral ones. This attitude has led to a significant disruption of climate and trade alliances, showing signs and trends of de-globalization In terms of industrial policy, the Trump administration emphasized "America First," hoping to promote the return of supply chains through various means to revitalize traditional American industries and address employment issues. This series of policies may affect the existing international division of labor, breaking some traditional economic variables with political factors. This could lead to a forced contraction of industrial relationships that were originally distributed globally based on the principles of optimal efficiency and lowest cost, posing major challenges for both the Chinese economy and the global economy.

The above is part of the content from a dialogue with Dr. Lu Zhe by Wall Street Insight.

On January 18, 2025, just before Trump was sworn in as President of the United States, Wall Street Insight invited the chief economist of Dongxing Securities Co., Ltd., Lu Zhe, to launch a master class titled "New Macroeconomic Variables under 'De-globalization'," a class that thoroughly explains Trump’s Trade 2.0 and the supply chain transactions of de-globalization. Interested friends are welcome to join and learn together!