Trump's Cabinet Formation: 2.0 Observation Guide

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

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

Key focus: U.S. Treasury Secretary, Trade Representative. The turnover rate of personnel in the Trump 1.0 administration was high, with Treasury Secretary Mnuchin and Trade Representative Lighthizer serving since 2017 until the end of Trump's term, assisting Trump in implementing tax reduction laws, 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 regulatory relaxation. Currently, there is a high demand for John Paulson and Scott Bennett; while the Trade Representative will determine the U.S. tariff strategy and pace for the next 4 years, Lighthizer's opinion 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, following the principle of "mutual benefit" with Trump. The economic impact is mixed, with a positive impact on the technology sector and digital currencies in the market. The more complex issue may be potential conflicts of interest, especially in the trade and tariff areas.

I. What is the "Cabinet" of the U.S. government?

The U.S. Constitution divides the government into three branches: 1) Legislative Branch, including the Senate and House of Representatives, with members elected by voters; 2) Executive Branch, led by the President, with core officials of the executive branch nominated by the President and voted on by the Senate; 3) Judicial Branch, led by the Supreme Court, with justices also nominated by the President and voted on by the Senate.

The executive branch led by the U.S. President consists of three parts: the Executive Office of the President, the Cabinet, and independent agencies.

1. Executive Office of the President (EOP): Composed 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, Environmental Quality Council, and so on.

2. Cabinet, consisting of three parts: Vice President + heads of 15 executive departments + other officials at the Cabinet level (Cabinet-level officials) **

The Vice President supports the President's work and assumes the presidency when the President is no longer able 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 split.

The Secretary of State, Secretary of the Treasury, Secretary of Defense, and Attorney General are considered the four most important positions in the United States Cabinet apart from the Vice President. They are usually older and more senior than other Cabinet officials.

The President will also select some other key agencies (such as those from the EOP or independent agencies) as "Cabinet-level agencies," with their heads being "Cabinet-level officials." The designation of "Cabinet-level officials" varies by President, for example, the Chairman of the Council of Economic Advisers was not at the Cabinet level during the Trump administration, but Biden elevated it to Cabinet level in 2021 (as shown in the later Figure 3).

3. Independent Agencies

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

There was turmoil among Cabinet members during Trump's first term, while Biden's term has seen more stability.

During Trump 1.0, out of the 15 Cabinet positions, 9 experienced mid-term replacements, with the Secretary of State changing from Tillerson to Pompeo in 2018. The turnover of "Cabinet-level officials" was also frequent. Trump was committed to ensuring that senior officials in the administration were highly aligned with his policy positions.

The President's adjustments and manipulations of Cabinet members often reflect the focus of his administration.

Comparison of Cabinet member arrangements between Biden and Trump (Figure 3):

1. Trump revoked the "Cabinet-level" status of the Chairman of the Council of Economic Advisers, a position typically held by a Ph.D. economist who provides economic analysis to inform policy rather than formulate policy itself.

2. In 2017, Trump elevated the Director of the Central Intelligence Agency (CIA) to a Cabinet position, while Biden announced the elevation of the CIA Director to a Cabinet position in July 2023, as the latter played a crucial role in responding to 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 policy, serving as the President's chief science advisor, and does not require Senate confirmation.

II. Potential Cabinet Picks if Trump Wins

1. Nomination and Confirmation Timeline for Key Official Positions Besides the Vice President and the White House Chief of Staff, appointments to executive positions require Senate approval. The Senate usually gives great respect to the President, and historically, the vast majority of cabinet nominations have been smoothly approved. Especially this year, the Senate is almost certain to be controlled by the Republican Party after the election.

After the 2016 election, it took an average of 4.6 weeks for President Trump to officially nominate candidates for various cabinet positions, and an average of 14.7 weeks from the election day to the final Senate vote for cabinet officials. This speed was faster than President 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, President Trump chose Steven Mnuchin as Secretary of the Treasury, and he proved to be one of the few who remained in the Trump administration despite frequent personnel changes. Mnuchin assisted Trump in pushing for tax cuts, relaxing financial regulations, and imposing tariffs.

If Trump is re-elected, in 2025 he will inevitably face new debt ceiling negotiations and negotiations on the extension and modification of the "2017 Tax Cuts and Jobs Act."

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

Key candidates for Treasury Secretary include John Paulson and Scott Bessent.

John Paulson, a hedge fund giant and billionaire, became a "financial legend" for shorting the subprime mortgage market in 2007. In a recent interview, he stated that interest rates should be lowered to around 3% or 2.5% by the end of next year, supporting tax cuts to stimulate the economy, and Harris's tax policies will lead to economic recession and market collapse, tariffs will not cause inflation. His economic policy stance is basically consistent with Trump's economic vision: cutting taxes domestically and imposing tariffs internationally.

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; tariffs are a negotiation strategy and will not reduce trade volume.

Other possible candidates for Secretary of the Treasury are shown in Figure 7. 3. United States Trade Representative

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

Trump praised Lighthizer for his intelligence and effectiveness in trade negotiations. If Trump returns to the White House, he may nominate Lighthizer again as the Trade Representative in 2025, or even for positions such as Secretary of Commerce, Economic Advisor, White House Chief of Staff, etc.

Apart from Lighthizer, other potential candidates for the Trade Representative position include: James Green and Bill Hagerty. Green served in the Trade Representative's office during Trump's first term, was a trusted assistant to Lighthizer, and shares Lighthizer's policy ideas. Hagerty is a senior figure from the old Bush administration, a Republican establishment figure, who served as the U.S. Ambassador to Japan during Trump's first term and received praise for vigorously promoting the U.S.-Japan trade agreement and WTO reform. He is currently a senator from Tennessee.

4. Secretary of State

The United States Secretary of State, a member of the cabinet, is responsible for formulating the U.S. government's foreign policy. During Trump's first term, two Secretaries of State were appointed: Rex Tillerson and Mike Pompeo.

Tillerson, former Chairman and CEO of ExxonMobil, became Secretary of State in February 2017. In October 2017, Tillerson's relationship with Trump deteriorated due to significant disagreements on diplomatic issues such as the Iran nuclear deal and North Korea. Tillerson was fired in March 2018.

Pompeo served as the Director of the Central Intelligence Agency in January 2017 and became Secretary of State in April 2018. He was one of Trump's most loyal supporters, advocating for the "America First" principle and maintaining a high degree of alignment with Trump's foreign policy stance.

The selection of the Secretary of State in 2025 is highly anticipated, as it will impact the direction of issues such as the Russia-Ukraine conflict, NATO, Israel, etc. If Trump wins the election, Pompeo remains a strong contender. Other potential candidates, as shown in Figure 9, may compete not only for the Secretary of State position but also for other senior national security-related positions such as Secretary of Defense, Director of the Central Intelligence Agency, National Security Advisor, etc 5. Secretary of Defense

The Department of Defense is the executive department of the United States armed forces, and the Secretary of Defense exercises command and control over the military. During President Trump's first term, he appointed 3 Secretaries of Defense: James Mattis, Mark Esper, and Christopher Miller (Acting Secretary).

James Mattis served as Secretary of Defense in January 2017. In December 2018, when President Trump announced the immediate withdrawal of U.S. troops from Syria, Mattis strongly opposed the decision and subsequently submitted his resignation.

Mark Esper assumed the role of Secretary of Defense in July 2019. In November 2020, President Trump announced Esper's dismissal, citing significant disagreements between Esper and Trump on issues such as the U.S. withdrawal from Afghanistan and northern Syria.

Christopher 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.

III. The Implications of Musk's "Political" Involvement

The combination of technology and politics and its impact remains one of the biggest questions for the market, especially with Musk openly supporting Trump and even directly participating in elections. As the probability of Trump's victory increases, we need to address and contemplate this issue:

In what capacity will Musk "enter politics"? We believe that Musk is unlikely to join the Trump administration as a head of an executive department or as a presidential advisor, as the former would require complex legal modifications and procedures, and the latter would mean Musk might have to resign from positions in companies like Tesla and SpaceX. 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 to address specific national issues, provide expert advice, or investigate certain concerns. These commissions consist of experts from various fields who conduct research, gather public opinions, and provide policy recommendations to assist the President in decision-making.

However, these commissions can only provide recommendations and do 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 he would also face fewer constraints.

What functions will he perform? "Mutual benefit," "kill two birds with one stone." From Trump's perspective, Musk is an important financial supporter and advocate for his campaign. In terms of policy, Trump also hopes to achieve a certain degree of inflation control through deregulation and cutting unnecessary government expenditures From Musk's perspective, government regulation may be one of the biggest obstacles to the development of future technology industries, and limiting regulation is beneficial for the development of Tesla, SpaceX, and the current AI boom.

Potential Impact: Economically, it is a mixed bag. Market-wise, it is positive for tech stocks and cryptocurrencies. From an economic perspective, relaxing regulations in the medium to long term will unleash certain institutional dividends, which will help boost economic growth. However, it will also directly impact government employment (Musk is known for being good at layoffs, and after acquiring Twitter in 2022, the company's employees were drastically reduced from about 7,500 to less than 2,000). It is worth noting that the weight of government employment in new non-agricultural jobs is significantly increasing.

From a market perspective, there is a large number of Musk's supporters in the cryptocurrency world, and Musk's entry into politics will be a "stimulant" for cryptocurrencies. His goal of loosening the reins on technology and future industries is basically well-known, and his tenure will undoubtedly be positive for technology and growth stocks.

Of course, another issue of concern is the potential conflict of interest. Musk's entry into politics and relaxation of regulations are beneficial for technological breakthroughs and future industries, which may be a "clear move." However, on the other hand, how to deal with issues between the supply chain of his companies and possible trade tariffs is more delicate. Whether to "handle both" or "sacrifice one for the other" is a question worth paying attention to.

Risk Warning: Unexpected progress in the U.S. election; worse-than-expected deterioration of the U.S. economy; unexpected changes in Trump's policy philosophy