We are all mercantilists now

Summary

For half a century, Bridgewater has focused on building a deep understanding of global markets and economies to deliver insights for the most sophisticated institutional investors. In this newsletter, my co-CIOs and I will share key themes from this research. Sign up here and get access to our latest edition. As Karen wrote earlier this month, change is definitely in the air. Like all investors, my job is to make sure we understand these changes so that we can prepare for them. One of the biggest shifts I’m tracking is the move to a new system for how economies and commerce will be managed. The previous global consensus around free trade and limited government intervention is hanging by a thread, and a different system—something I call “modern mercantilism”—is increasingly ascendant, with the election of Donald Trump representing another dramatic step in this direction. I want to share with you how I’m processing this new world that we’re entering, because I think it will have major implications for asset portfolios. Below, I’ve included my view of what’s happening and why it matters.Greg Jensen Co-Chief Investment Officer, Bridgewater AssociatesWe Are All Mercantilists NowTime magazine in 1965 published an article whose title quoted Milton Friedman: “We Are All Keynesians Now.” Using fiscal deficits to manage business cycles—once an unorthodox idea—had become mainstream, driving market outcomes in the decades that followed. When society’s beliefs about the role of government shift, it affects investors. Philosophical shifts alter how people expect the government to respond to changes in economic conditions and determine to what extent policy drives economies. The rise of Keynesianism, for instance, became critical for understanding the global financial crisis and Covid shock.For much of the post-World War II era, neoliberalism was the mainstream economic ideology. Countries lowered tariffs, integrated their economies, and specialized according to areas of comparati...