A letter from America part I – how did we get here?

However, in the current situation, where fundamentals seem to matter less and broad fear of “Trumpian Chaos” hangs over the market like a Damoclean put option, we felt our time was better spent engaging with Washington insiders and with those best placed to inculcate us with current investor sentiment across various capital pools (sub-sectors, VC. PE, equity, credit etc.)

Over the coming days, we attempt to summarise the various opinions that we have heard into a cohesive narrative. This is a situation where one must try to leave personal views and political opinions to one side and accept that ‘we are where we are’. Key to this is to understand the constituencies involved in policy making, and the limits of Presidential power via Executive Order versus legislative action through an admittedly supine-looking Congress.

One of the interesting aspects of this whole endeavour is that many of the people we have listened to and spoken with over this week were at some pains not to criticise directly what appears from our shores to be an prickly and vengeful-sounding executive branch, so will not be attributed, especially those of people close to the administration who are lobbying to mitigate the worst urges of certain individuals. As one wryly said “we all need to accept this is Trump’s world for the time being, and we have to live in it”.

The positive news for healthcare investors here is that the world’s largest ($400m per year) lobbying effort is in full swing, and understands how to play to the audience by crafting whatever narrative they need to put forward in the right light. The other positive development is that the consequences of all of this are not lost on Congressional members who will be facing their electorate in two years (or four at most) and will be held accountable if the outcomes are viewed negatively.

Let us begin though by summarising their perspective on this administration’s world view:

The world view
The simplistic view is that America is getting ripped off by everyone. Its exceptionalism has driven innovation in almost every field, it polices the world but everyone is freeloading on the back of this, creating an unfair playing field for commerce and outsourcing their intelligence, security and defence to America on the cheap. This is unfair and has to stop.

Worse, China has gamed everything since it joined the WTO and is either already at or only a few years from reaching a hegemony position in a number of fields (solar power, battery electric vehicles, critical minerals) and is rapidly catching up in AI and Biotechnology (this fascinating topic will be the subject of a separate letter). This simply cannot be allowed to continue.

In part, China has been able to move quickly through government direction. In contrast, America has been saddled with an oversized, “left leaning” and sclerotic bureaucracy that is stifling innovation and growth through too many rules. This must be brought to heal to unleash the animal spirits that will allow America to regain its rightful place atop the world.

Any ideas to achieve this are ‘on the table’ and, since everyone is guilty of ripping off the USA to some extent, old allegiances are not viewed from their side in the same way as they are from the other side. Things like the EU blocking US M&A, or US-headquartered multi-national companies operating in a certain way in order to ensure global operations are in compliance with a far-away “unaccountable” legislative bodies (UN, WTO, Basel, EU etc.) are significant sources of ire.

Seeing funding being trimmed at the NIH and talk of cuts at the FDA etc. might lead one to think this administration is anti-innovation and harks back to some imagined golden age. However, many people we spoke to were keen to stress the opposite is the case. They want more innovation and believe that the best way to support this is through less regulation.

The government is too far behind the commercial realm in its adoption of technology to drive productivity and Trump wants to see America winning in Tech broadly, AI specifically, Pharma/Biotech, Aerospace, Automotive etc. They are also keen on public hearings and data sharing (on everything, from vaccine safety to UFOs!) to ensure that the wider public feels that it has a stake in the changes being implemented rather than being patronised from afar by a “liberal elite” (or even a cabal of self-interested billionaires?).

The ‘out of control’ bureaucracy has allowed an unsustainable deficit to balloon to a point where rolling over and funding America’s debt is an existential threat in and of itself, and the country must find its way back to a sustainable financial position. However, this cannot be achieved through penalising American companies and citizens with higher taxes. Spending must be cut and the freeloaders must be made to pay in some way, hence the repeated usage of punitive tariff threats to secure incremental gains. This seems unlikely to stop.

Cutting spending isn’t an easy needle to thread when debt interest is not in your control, defence spending is unlikely to fall in such an uncertain world and the largest entitlement programs directly impact your core voter base.

Therefore, if you are lobbying the administration (either as a foreign potentate, or for a given special interest group domestically), you need to frame your arguments within the prism of this narrative, otherwise you are not going to get anywhere. If you can construct an argument that fits within it though, you will find a very receptive audience.