The U.S. slide into authoritarianism
As an investor witnessing more than three decades of booms and busts, I find it increasingly difficult to separate investing from politics, especially when political figures have a harmful, toxic, and deleterious impact on investment performance. I am frequently told by those who disagree to stay in my lane and steer clear of politics, but under Trump, the two subjects are intertwined. I believe it’s impossible to peer into the future – where investment returns are produced – and ignore Trump’s impact, and therefore, his intentions.
The re-election of Donald Trump to the U.S. presidency in 2024 has inarguably reignited concerns about the state of American democracy. Frighteningly, for me, the response this time is markedly different from 2016. As Foreign Affairs noted in its March/April 2025 edition, “Donald Trump’s first election to the presidency in 2016 triggered an energetic defense of democracy from the American establishment. But his return to office has been met with striking indifference.” This shift in attitude comes at a perilous moment, as the United States faces unprecedented democratic backsliding.
As investors, we must consider the future, and I for one, cannot help but consider the mechanisms and implications of what appears clearly to me to be a slide toward competitive authoritarianism, a framework where elections persist but are skewed by the incumbent’s abuse of state power.
Indeed, I find it remarkable that many investors focus solely on company earnings growth for the next few years. While it is our job to do just that, we shouldn’t pretend to operate in a bubble, especially when the geopolitical landscape is experiencing a tectonic shift. Even if we cannot factor the outcomes into our revenue and EBITA modelling, we should at least devote some thought to whether there are ways to prepare portfolios through partial diversification, perhaps into non-public assets.
Over the past decade, the United States has experienced a steady erosion of democratic standards. As Foreign Affairs notes, according to Freedom House’s global freedom index, the U.S. score dropped from 92 in 2014 to 83 by 2021, placing it below Argentina and on par with Panama and Romania. This decline reflects weakened institutional checks, with Trump’s 2020 attempt to overturn the election results going unpunished by Congress or the judiciary.
More recently, Trump’s 2024 campaign openly embraced authoritarian rhetoric, promising to prosecute opponents, suppress media, and use military force against protests – promises bolstered by a Supreme Court ruling granting Trump broad presidential immunity.
Unlike his first term, where inexperience and internal party resistance limited his actions, Trump now commands a loyal Republican Party. “Democracy survived Trump’s first term because he had no experience, plan, or team… This time, Trump has clarified that he intends to govern with loyalists.” This loyalty, coupled with a purged party, sets the stage for a more deliberate authoritarian agenda.
Witness most recently the threat to arrest Gavin Newsom, the Governor of California. Newson has responded this week, stating “What’s happening is unlike anything we’ve seen before”, adding, “This isn’t just about protests here in Los Angeles. When Donald Trump sought blanket authority to commandeer the National Guard, he made that order apply to every state in this nation.”
Despite the riots in L.A. winding down and being concentrated in just a few square blocks downtown, Trump chose to create a crisis, incite chaos and violence and by so doing create support for the taking of more control.
Trump has repeated invoked crises allowing special powers to be spuriously applied. The L.A. riots were a response to this. As Newsom noted, “California is no stranger to immigration enforcement, but instead of focusing on undocumented immigrants with serious criminal records and people with final deportation orders, a strategy both parties have long supported, this Administration is pushing mass deportations, indiscriminately targeting hard working immigrant families regardless of their roots or risk.”
Trump created the crisis, justifying more control to quell it.
“Putting out a fire you start, doesn’t make you a firefighter, it makes you an arsonist with a hose.” Jimmy Kimmel.
Source: Jimmy Kimmel Live
The U.S. doesn’t have a problem, Trump creates the problems. Consider Trump’s North Korean-esque military parade, arranged at a cost of US$206 million to mark his birthday. He has already promised to invoke the Insurrection Act if anyone protests, stating anyone who protests “hates our country”.
Perhaps one, if only slightly, encouraging observation is the United States is not sliding toward a classic dictatorship but toward competitive authoritarianism, where elections occur but are unfairly tilted. According to Foreign Affairs, what lies ahead for the U.S. is not a “fascist or single-party dictatorship but competitive authoritarianism—a system in which parties compete in elections but the incumbent’s abuse of power tilts the playing field against the opposition.” Examples include Hungary under Viktor Orban and Turkey under Recep Tayyip Erdogan, where opposition exists but faces systemic disadvantages.
This system emerges through the weaponisation of state institutions. The U.S. federal government, with its US$7 trillion budget and over two million employees, wields immense power over political, economic, and social spheres.
“Even in countries such as the United States that have relatively small, laissez-faire governments, this authority creates a plethora of opportunities for leaders to reward allies and punish opponents.” Foreign Affairs.
Trump’s reinstatement of Schedule F, an executive order allowing the conversion of tens of thousands of civil servants into at-will employees, threatens to replace professionals with loyalists, mirroring tactics used by autocrats like Orban and Erdogan.
One hallmark of competitive authoritarianism is using state agencies to target critics. Trump’s nominees, such as Pam Bondi for Attorney General and Kash Patel for FBI director, have signalled intent to prosecute rivals. Indeed, he has openly declared his intention to prosecute former Republican Representative Liz Cheney, and while convictions may be rare due to independent courts, the harassment, through investigations, audits, or lawsuits, deters opposition because individuals are forced to “devote considerable time, energy, and resources to defending themselves.”.
Beyond punishment, Trump co-opts elites through rewards. Witness the markets observation of Trump making pronouncements that adversely impact the price of certain assets, then reversing course, resulting in prices rising again and, in the process, rewarding his allies. Consider also the drill, drill, drill campaign to reinstate mining, even in national parks, directly rewarding friends and family and engendering support from large corporations, even if the policies harm staff.
Meanwhile, businesses, media, and universities, fearing regulatory or legal repercussions, may align with the administration, as we have seen with CEOs from Amazon, Google, and others who donated heavily to Trump’s inauguration, a 180-degree shift from their previous criticism.
A weaponised state also protects allies from accountability. Trump’s pardon of January 6 insurrectionists signals tolerance for political violence, a tactic with historical precedent. As Foreign Affairs notes, “During and after Reconstruction, the Ku Klux Klan… waged violent terror campaigns… made possible by the collusion of state and local law enforcement.” This protection emboldens extremists, increasing risks for critics and journalists.
The chilling effect of state harassment could sideline opposition, as Foreign Affairs observed, “the heightened cost of public opposition will lead many… to retreat to the political sidelines.” This self-censorship, though less visible, could erode democratic vitality by discouraging new activists, journalists, and politicians.
I believe the United States stands at a crossroads. The Trump administration’s moves to weaponise state institutions threaten the foundations of liberal democracy, pushing the nation toward competitive authoritarianism. While constitutional safeguards and societal resilience offer hope, the opposition must remain vigilant. As Foreign Affairs warns, “When fear, exhaustion, or resignation crowds out citizens’ commitment to democracy, emergent authoritarianism begins to take root.” The fight to preserve democracy requires sustained resistance, lest the U.S. slide further into an unfair and uncompetitive political and financial arena.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
