Trump, Milei and how to lose the trust of markets and voters

The early days of the Javier Milei Presidency in Argentina seemed wild, as if the world had been turned on its head. There was a feeling of shock and uncertainty, together with a certain adrenaline as the self-proclaimed “anarcho-capitalist” put together his Cabinet and claimed he was on a God-given mission to eradicate inflation and the State. But if Milei’s early impact seemed momentous, it should be considered infinitesimal next to the level of stress that Donald Trump is exerting on society at a planetary level. The power that comes with the Presidency of the United States together with four years of previous experience and a cabinet built specifically for this second term means Trump 2.0 has an incredible capacity to try and exert his will on the world’s most powerful country – and therefore on the global population as a whole.

It’s difficult to try and characterise Trump’s actions and put them in a broader context, particularly as he’s making decisions on instinct, as he noted regarding the whole tariffs ordeal. Whether he’s dismantling the global trade system in order to replace it for another that’s more favourable for the United States, or if his game is geopolitical in nature, or even if it’s a simple negotiation tactic to gain leverage over his adversaries, it all remains to be seen. Trump himself probably doesn’t have a clear picture of where it’s all going, but it seems excessive to simplify things by claiming he’s “gone mad.” The same should be said about Milei. Trump has shredded the rulebook for US — and global — politics, securing re-election as a convicted felon who encouraged his followers to storm the US Capitol. He’s proved an able politician – at least in terms of securing and retaining power – and is once again facing the limits of his political power in the United States and abroad, even though he denies it. He hasn’t been able to secure a lasting truce between Ukraine’s Volodymyr Zelenskyy and Russian Premier Vladimir Putin while the ceasefire between Israel, Hamas and Iran’s proxies is constantly under threat of breaking down, if it hasn’t already.

Wild swings in global financial markets resulted in an extremely dangerous move in the value of United States Treasury securities, one of the world’s most liquid and structural markets. Considered a safe-haven, they generally move opposite equities. During a stock-market crash, investors pile into safe havens, particularly Treasuries. Yet, this past week the value of them tanked alongside equities, forcing Trump’s hand and a reversal on his so-called “reciprocal tariffs.” Hedge funds were forced to dismantle momentous amounts of structured trades in bond and equity markets, indeed causing a major “short squeeze” that generated one of the largest single-day rallies in the history of the US stock market. Trump stepped back from the edge, at least momentarily, even though he is keeping his finger on the trigger.

Incredibly, these types of external shocks have become all too normal for the past few Argentine presidents, both of whom failed to secure re-election. Mauricio Macri won his midterm elections, faced political difficulties in the immediate aftermath, and then succumbed to an exogenous shock that started in 2018 and sparked a nasty devaluation of the peso. He asked the International Monetary Fund for a lifeline. Luis ‘Toto’ Caputo and Federico Sturzenegger were both on that ship. Alberto Fernández, with Cristina Fernández de Kirchner as his VP, was hit by Covid-19 just as he was trying to find his bearings. There was a global market crash, and a harrowing drought, though ultimately his first economy minister, Martín Guzmán, reached a restructuring agreement with the IMF (and private creditors). Milei, off the back of a very successful first year in office (according to his dual goals of slashing the deficit and lowering inflation), must now weather a global market storm. Once again, Argentina relies on the IMF.

The circular nature of current events pushed Eduardo Fidanza, one of Argentina’s shrewdest observers of social trends, to pen a column in Perfil titled: ‘En Argentina siempre es lunes’ (“It’s always Monday”). In it, he makes references to Groundhog Day, a film starring Bill Murray, and Cien Años de Soledad, Gabriel García Márquez’s masterpiece. For Argentina to overcome the cyclical trend it must generate trust and confidence both in society and the market. This would allow for a continuation of rational socio-economic policies from the government, regardless of who is in power, while reducing the constant pressure to seek safety as far away from the peso as possible. Unfortunately, the Milei administration seems to have lost its halo in recent months, putting it in a much weaker position in order to face the dual shocks of losing the trust of voters and investors.

Since Trump’s inauguration, Milei has seen drainage in his popularity figures and in the population’s trust in his administration. In an exclusive livestream for Perfil’s subscribers, Fidanza spoke of a “loss of innocence” that leads to “this government beginning to look like other governments,” which has sparked an “increase in distrust.” A hypothetical line could be drawn starting with Milei’s speech at the World Economic Forum in Davos, where his total alignment with Trump’s anti-woke, anti-immigrant stance began to alienate him from potential followers. The ‘$LIBRA’ crypto-scandal together with the botched interview where controversial advisor Santiago Caputo interrupted journalist Joni Viale in order to stop Milei from answering a question tainted the President’s image as an outsider mandated with ending the “political caste’s” benefits. Violent crackdowns on pensioners and retirees, even if opposition political parties were part of the mayhem, may help Security Minister Patricia Bullrich’s positioning with Milei’s voters, but it further hit the President’s personal approval ratings. Financial stress forcing the Central Bank to sell billions of dollars in order to keep the peso-dollar exchange rate partially contained began to spark a chill that went up society’s back, so used to having to run to the safety of the dollar at any cost.

Much like Macri and Alberto Fernández before him, Milei appeared invincible at some point. He had managed to outsmart his political adversaries while putting the economy in check. Inflation was coming down, and he seemed the sure winner of this year’s midterm elections, making the path toward re-election look all that much easier. Now, he could be on track to a series of electoral defeats in this year’s packed electoral calendar, including the consequential election in Buenos Aires City, where La Libertad Avanza is currently locked in a tussle for second place with Macri’s PRO party. At the heart of their electoral weakness is a failure to construct electoral coalitions, with Presidential Chief-of-Staff Karina Milei, Javier’s sister, leading that (losing) battle. Fidanza sees the Buenos Aires Province as a more opportune race, where the break between Governor Axel Kicillof and Fernández de Kirchner, together with a strategic alliance with PRO, could help them secure victory. The outcome of the race in the capital will determine who ends up imposing conditions, Macri or Milei.

It will be a difficult few months for the President and the country. Once again, uncertainty is the name of the game.