Elon Musk – political influencer

Elon Musk, political influencer

Elon Musk, controversial billionaire and head of Tesla, SpaceX and X (formerly Twitter) and the world’s richest person, has been a clear winner from Donald Trump’s victory. Following Trump’s re-election as president, his net worth has increased by a staggering 77%, finishing 2024 at over $400bn. It has been a remarkable turnaround in the relationship between the two men, given that in 2022, Musk told Trump to ‘hang up his hat and sail into the sunset.’

He is now surely the most powerful unelected person in the world. His influence is even more powerful through his control of X, and his personal following is over 210 million compared with Trump’s 97 million. He has been vocal on X, but following Trump’s election victory, politicians, corporations, and countries around the world must think carefully when responding to avoid offending Trump. Elon Musk’s animosity towards Sir Keir and the Labour government is not helpful for the UK as Trump takes power. Musk has also ruffled feathers in the EU with his support for Germany’s far-right AfD party. Did Elon Musk perform a Nazi-style salute at Trump’s inauguration?

In the US, Elon Musk has been tasked with budget-cutting on behalf of Trump. During the election campaign he claimed he could save $2trillion, (7% of GDP) through the new advisory body, the Department of Government Efficiency (DOGE). However, he has since admitted this was a ‘best case outcome’ and that he now thought there was only a ‘good shot’ at cutting half that amount. Market estimates of DOGE savings have been pared back to a more realistic $500bn.

Will the Trump/Musk ‘first buddy’ relationship endure the test of time? Trump intends to rebuild America’s automotive industry and allow consumers the choice of traditional petrol cars or EVs, so not so good for Tesla? On the other hand, he has backed Musk’s ambition to plant the ‘Stars and Stripes’ on Mars. In the meantime, what about the US and China trade tariffs and technological war? China is Tesla’s second biggest market and is home to its biggest car plant outside the US. How will Musk’s commercial view of China sit with many in US Congress who view China as a military threat?

Breaking news: Over the weekend, startup Chinese technology company DeepSeek has developed a cutting-edge AI model that will be ringing alarm bells in Silicon Valley!

What have we been watching?     

The start of ‘a golden age for America.’ In his inauguration speech, Trump majored on illegal immigration and border control. He withdrew from the Paris Climate Accord and said America will ‘drill, baby, drill’ as it seeks to exploit its oil and gas reserves. US consumers will have the choice of ICE cars or EVs as Trump looks to rebuild the US automotive industry. He also confirmed the establishment of the External Revenue Service to collect trade tariffs. And yes, he wants control of the Panama Canal and is going to rename the Gulf of Mexico, the Gulf of America! Trump said the US ‘would be a growing nation’ which ‘expands our territory.’      

From a market perspective, the focus remains on trade tariffs which would be inflationary, so the scale of these and the countries likely to be impacted are being closely watched. While signing countless executive orders, he did refer to tariffs. ‘We’re thinking in terms of 25% on Mexico and Canada, because they’re allowing vast numbers of people in.’ Trump said new tariffs on China could depend on whether a deal is reached over TikTok’s future. If Beijing blocked such an agreement, ‘it would be somewhat of a hostile act.’ Twenty-four hours later, Trump talked about a possible 10% tariff on China, albeit this is less punitive than the 60% that he proposed originally. He has also started attacks on the EU regarding tariffs, although the EU Commission has rejected his claims that the US runs a $350bn trade deficit with the EU, pointing out that the EU has a surplus in trade for goods, but the US has a surplus in trade for services.

Clearly, Trump views tariffs as a very effective negotiating tool but is also no doubt mindful of the market’s sensitivity to any inflationary tariff actions. Trump has already got his way with Columbia backing down over deportation flights from the US with the threat of a 25% tariff. What would this tariff have done to coffee prices in America had the tariff been imposed? The first few days of Trump’s administration have already underscored that the policy environment will be dynamic once again, suggesting markets may become more volatile. While he stopped short of imposing tariffs on his first day in office, he did reaffirm that they are coming.  This has eased some of the inflationary concerns with the US 10-year Treasury yield slipping back below 4.6%.

Trump also appears to be widening economic warfare beyond tariffs by withdrawing from the OECD global tax pact, which allows other countries to levy top-up taxes on US multinationals. American responses might include extra taxes on foreign-owned groups operating in the US. The move to focus on taxes feels as if it has been driven by Trump’s billionaire tech entrepreneur allies.

As regards the war in Ukraine, Trump said Putin ‘has to make a deal. I think he is destroying Russia by not making a deal. I think Russia is going to be in big trouble.’ This was followed by a post on Truth Social saying that if a deal wasn’t made to end the war, Trump would ‘have no choice but to put high levels of taxes, tariffs and sanctions on anything being sold by Russia to the United States and various other participating countries.’ Putin has said he is ready for talks with Trump.

 

In the UK, the theme of weaker activity and firmer pricing continued in the latest labour market report. The unemployment rate moved up to 4.4%, but there was another upside surprise in private sector pay with non-bonus average weekly earnings growth of 5.6%. Meanwhile, further signs that the UK economy is bumping along with next to no growth. The ‘flash’ PMI business activity indicators for January showed manufacturing at 48.0 and services at 51.2. There was more bad news for Chancellor Rachel Reeves as government borrowing in December was £17.8bn, which is the highest number for four years, and worse than market expectations of £14bn. The Office of Budget Responsibility (OBR) report on 26th March is looking more and more crucial for UK bond yields and the government. Talks of public spending cuts of up to 5% do not appear to be believed by the market, with the 10-year gilt yield at almost 4.6%.

 

In Europe, ‘flash’ PMI business activity indicators for January showed that the region remains in the doldrums. Manufacturing remained in contraction at 46.1 while services are expanding at 52.5.

 

In the US, questions are being raised over the dominance of America’s AI technology stocks as China’s DeepSeek unveiled an updated AI model that is competitive with OpenAI’s technology. While the US trade restrictions have sought to keep AI chips out of China’s hands, DeepSeek’s model appears to have been built using open-source technology. Meanwhile, US ‘flash PMI business activity indicators for January showed a slight improvement in manufacturing to 50.1 but a drop in services to 52.8.

 

The Bank of Japan increased interest rates by 0.25% to 0.5% as had been expected. This follows the December inflation data, which showed CPI rising to 3.6%.

 

Despite Trump tariff threats, Chinese equities received support from China’s Securities Regulatory Commission, whose chairman said that mutual funds should increase their onshore equity holdings by at least 10% each year for the next three years.  

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Brent oil dropped below $79 as Trump confirmed America will ‘drill baby, drill’ and rebuild its strategic oil reserve.

Finally, is ‘Rachel from accounts’ clutching at straws? Chancellor Rachel Reeves has asked regulators such as the FCA, CMA, Ofgem, Ofwat and Ofcom to ‘tear down’ red tape to encourage stronger UK economic growth. For example, the FCA has suggested it could simplify mortgage requirements to help more home buyers secure a property and is also exploring increasing the £100 contactless payment limit. Is it a case of desperate times call for desperate measures?

 

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