The following discussion is adapted from a July 26, 2025 video conversation between two partners at iOne Capital. Topics include:
- Elon Musk’s proposed third party
- The similarities and differences between Musk and Bessent on debt management, and the policy impact of the Big Beautiful Bill
- Forecasts and medium- to long-term implications of trade agreements
Note: At the time of recording, the U.S. and the EU had not yet reached a trade agreement. - Major asset allocation
Introduction: How to Find the Truth
Liu: Before we begin discussing U.S. political and economic developments, let’s start with a question investors often ask. We all know that the current U.S. political environment has created a media landscape in which different outlets have dramatically different perspectives. For the same event, if you compare coverage from left-leaning and right-leaning media, it often feels like two completely different worlds.
In this environment, how can investors better understand the truth?
Fan: This is an extremely important question. I think the first thing everyone must accept is that there is no such thing as a perfectly fair and objective media outlet. All media have positions. Once there is a position, there is inevitably bias.
However, if a type of media has a self-correcting mechanism, and if the source of that correction is independent or multidimensional, then its objectivity improves significantly.
That is why I usually recommend that investors follow financial and investment media, such as CNBC Finance and Bloomberg Markets. These outlets focus on economic and market developments. Their viewpoints and positions are disciplined by market verification. For example, if a particular judgment is not validated by the market, they must accept and discuss alternative possibilities. Otherwise, they cannot demonstrate value to their audience.
Liu: What about self-media platforms, such as X, formerly Twitter? Are they also useful channels?
Fan: Yes. X is a very good source of information, because many different views collide there, especially on specialized topics such as economics and markets. But this requires a higher degree of active judgment from the user. Social media contains a lot of noise, but also a great deal of information. The key is how to filter and read it.
I can share two tips for using social media.
First, always expand posts on X and read the replies underneath. Once a post is expanded, you will almost always find different opinions and perspectives below it. Often, the most mainstream opposing views appear near the top.
This algorithm itself creates a decentralized verification mechanism. Under every spontaneous opinion, spontaneous feedback forms. If you read those responses at the same time, your perspective broadens, and it becomes easier to analyze issues dialectically.
Traditional media transmit information to readers in a centralized, monopolistic way. That makes it easier to manipulate readers’ perception of reality.
The second tip is that if you have any questions, you can ask Grok, X’s built-in AI, to answer them. It can help you better understand the truth. Usually, under controversial topics, you will already see users asking Grok questions and receiving responses.
Liu: Seeing multiple perspectives certainly gives people a better sense of the full picture than seeing only one perspective. But the process of actively searching for truth can also be uncomfortable, because you must read many opposing arguments and then use your own judgment to synthesize the truth.
By contrast, consuming centralized media is much more comfortable, because the author gives you a coherent and self-contained story. Even if reality is complex and multidimensional, readers often prefer a simple story.
Fan: Exactly. Some readers subconsciously do not want to face the truth. They only care about narratives that fit their preferences.
More ironically, some people who read so-called elite media have a kind of arrogance at their core. They believe their understanding is superior to that of ordinary people. Yet precisely because of that, they develop blind spots and biases and become unwilling to correct themselves.
For investors, this is a major taboo. The market does not care about your ego. It cares about the truth.
Musk’s America Party
Liu: Let’s turn to the main discussion. First, how do you view Elon Musk’s intention to establish a third major party?
Fan: Although Musk has clearly stated his intention to establish the America Party, in reality, he has not actually registered the party so far. There are even reports suggesting that the party name has already been registered by someone else. So for now, this should be viewed as a political statement by Musk rather than concrete action.
Whether he will actually move forward remains to be seen.
Liu: Based on Musk’s own comments, his purpose in establishing the America Party is not to form a third party that competes directly with the two major parties. Rather, it is to capture a few key seats in Congress and thereby exert decisive influence over policymaking.
Because congressional votes are now often extremely close, controlling one or two key votes could allow him to influence the entire legislative agenda.
Fan: That is indeed his objective. If he can achieve that, both parties would need to court him, because both would depend on him to pass legislation. As a result, both sides would have to make compromises with him.
From the perspective of his own interests, this is also a way to protect the high-tech industrial empire he has built and to better realize his vision. Without his own party, he can only rely on the leaders of the two existing parties, which makes it difficult for him to independently achieve his policy goals.
Liu: That makes sense. I noticed that U.S. politicians have taken a relatively ambiguous attitude toward Musk’s proposal to establish the America Party. For example, very few Republicans have criticized him. Even Trump did not appear to threaten him aggressively; he merely expressed dissatisfaction.
Fan: That is true. Fundamentally, this reflects the relationship between politics and business. Politicians generally do not want to oppose major capital owners; they hope to receive support from them.
Interestingly, some politicians have even given Musk advice. For example, Republican star governor and former presidential candidate Ron DeSantis suggested that if Musk wants to impose hard limits on government fiscal spending, he could launch a national referendum to amend the Constitution. DeSantis also noted that nearly 30 states have already agreed to this type of amendment, so Musk would only need to spend money in a few key states to achieve his goal.
Liu: It seems Musk has more than one way to achieve his objective.
Fan: Yes. In fact, establishing a third major party is a complicated undertaking that requires substantial resources. Even for someone as powerful as Musk, it remains a low-probability event. Therefore, I think he is still considering his options and looking for the most efficient way to achieve his political goals.
Liu: This brings us to Tesla. Views on Tesla have recently become highly polarized. How do you view the company?
Fan: My view remains the same as before. The dispute between Musk and Trump does not fundamentally alter Tesla’s position as a leader in AI, robotics, and energy-storage technology in the U.S. and globally. Therefore, it does not affect the company’s fundamentals.
Liu: I saw that Trump posted a friendly message toward Musk in the past couple of days. Is that because Musk’s Epstein-related post put him under pressure, making Trump feel that softening his tone was the better strategy?
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Fan: Silicon Valley investor Peter Thiel has a famous saying: “Never bet against Elon.” Perhaps Trump has also come to understand the meaning of that phrase.
Musk vs. Bessent: The Big Beautiful Bill
Liu: One of Musk’s key criticisms of the Trump administration is that it has not focused on addressing the excessive U.S. fiscal deficit. How do you view this issue? Are you on Musk’s side or the Trump administration’s side?
Fan: Strictly speaking, the logic behind addressing the fiscal deficit was designed by Treasury Secretary Bessent. Musk and Bessent have also argued with each other publicly. So the real question is whether one should side with Musk or Bessent.
First, I want to emphasize that Musk and Bessent actually share the same objective: both want to reduce the debt-to-GDP ratio. Their logic is theoretically valid, and both approaches have successful real-world precedents. But they differ in perspective.
Musk wants to adopt the method used by Argentine President Javier Milei: dramatically cut the government, preserve only the most essential departments, reduce government spending, and shrink the fiscal deficit. At the same time, the economy would be heavily privatized, improving the efficiency of capital flows and reducing frictions and costs. This can increase economic growth.
This approach has clearly achieved historic success in Argentina. But the downside is that the method is extremely forceful and disruptive. It requires a sweeping restructuring of the government. During that process, large numbers of people lose their jobs, and many people lose benefits. So it is essentially a “destruction before rebirth” approach.
Liu: Argentina was able to do that because its currency had collapsed, its economy had broken down, and ordinary people had few alternatives. In other words, they had suffered enough and become numb to hardship. Rather than continuing the same path, they were willing to attempt a radical reset, which is why someone like Milei could be elected and implement his strategy.
But for any country whose economy is still reasonably functional, especially a country like the United States, implementing such reform would face enormous resistance. The public would have to endure short-term pain, and politicians are unwilling to bear that risk.
Fan: That is completely correct. We can clearly see the nationwide protests that followed layoffs by Musk’s Department of Government Efficiency, as well as the intensity of the backlash and attacks against Tesla.
Moreover, many of the proposals and ideas from the Department of Government Efficiency were not approved by the White House or Congress. Politicians do not want to offend the voters and interest groups that support them.
Therefore, this approach is very difficult to fully implement in today’s United States.
Personally, I greatly admire and support Musk’s philosophy, and I am also a supporter of Milei. In theory, if this approach is executed properly, I believe its probability of success is very high. But if I were the U.S. president, I probably would not do it, because I would know that it is unlikely to be achievable in practice.
Liu: What is Bessent’s approach?
Fan: Bessent’s main approach is to expand the denominator — GDP. A similar logic was applied in the United States after World War II, and it succeeded.
As we know, the U.S. incurred very high debt during World War II, and the debt-to-GDP ratio at that time was no lower than today’s. Ultimately, the U.S. alleviated the debt burden by significantly growing GDP. The total amount of debt did not decline, but GDP growth increased sharply.
Bessent’s overall strategy is to use government policy to increase GDP while controlling the growth of debt.
Liu: This brings us directly to the incentive policies in the Big Beautiful Bill.
Fan: Yes. The Big Beautiful Bill reflects three important elements of Bessent’s thinking.
First, deregulation is intended to significantly increase bank lending capacity and improve the efficiency of industrial development.
Second, domestic tax cuts are designed to incentivize investment and consumption by businesses and individuals.
Third, tariff negotiations, combined with domestic incentives, are intended to encourage companies and foreign countries to invest in physical assets and manufacturing capacity inside the United States. This includes advanced manufacturing, such as chips and automobiles, as well as sectors critical to national security, such as steel and pharmaceutical manufacturing.
One point worth noting is that the main reason U.S. GDP increased significantly after World War II was population growth, including the baby-boomer generation. This greatly increased aggregate GDP.
Today, however, the situation is very different. The probability of explosive population growth is low. Therefore, the U.S. must increase GDP per capita in order to increase total GDP.
Liu: In other words, the U.S. needs to increase productivity per person, and AI and robotics can significantly improve productivity.
Fan: Exactly. This is also a strategic priority for the United States. Policymakers understand that, especially in today’s environment of labor shortages, manufacturing development depends heavily on AI and robotics. These two forces reinforce each other. Manufacturing investment promotes AI and robotics development, and AI and robotics then upgrade manufacturing.
That is why I have repeatedly emphasized that U.S. AI and robotics will be the world’s most important asset category over the next decade.
Liu: What is Bessent’s thinking on the numerator — debt?
Fan: On one hand, through external taxation, the U.S. can generate some revenue, and so far that revenue appears meaningful. More importantly, at least part of this tax burden is borne by overseas importers.
By contrast, the traditional approach of collecting domestic income tax is ultimately borne entirely by domestic consumers. From that perspective, this is favorable for U.S. consumers.
Liu: If tariffs are passed on to consumers, then they are effectively a form of consumption tax. But for most imported products, consumers have options to avoid or substitute them. Income tax, however, is rigid and unavoidable. That is one advantage of a consumption tax.
Fan: Correct. On the other hand, the Big Beautiful Bill imposes certain restrictions on welfare benefits. For example, it requires young people to work a certain number of hours before receiving healthcare benefits. This not only encourages young people to work, but also saves a significant amount of government spending.
According to estimates from institutions such as Goldman Sachs, as well as Bessent’s own calculations, the fiscal deficit as a percentage of GDP will initially rise further. But afterward, it should shift direction. During Trump’s term, the deficit-to-GDP ratio is expected to reverse.
There is also a very important variable here: Federal Reserve interest-rate policy.
Liu: Trump has recently been pressuring Powell to cut rates. Is that partly to reduce the interest burden on debt?
Fan: That should be one factor. Another factor is to further stimulate economic growth.
I think Bessent may also hope that the Fed and the Treasury can cooperate to reduce the debt burden. After World War II, the Fed and the Treasury did coordinate. The specific method was to exert a degree of control over Treasury yields, thereby lowering the interest rate on government debt and reducing the debt burden.
Liu: That is fairly easy to understand. Suppose interest rates are set roughly in line with inflation, meaning the real interest rate is zero. If real GDP growth is positive, then the debt burden relative to GDP will gradually decline.
Fan: Exactly.
Liu: Compared with Musk, do you therefore agree more with Bessent’s approach?
Fan: Bessent’s approach will not cause a short-term economic recession, but whether it succeeds is more uncertain because it involves many variables.
I believe that if the next two administrations both follow Bessent’s logic, there should be more than a 50% probability of seeing debt relief. But no one knows what will happen in the midterm elections, and no one knows what the next administration will look like. If the execution framework changes, the result could be affected. If unexpected developments cause a sudden macroeconomic shift, that would also affect execution.
So if I really had to choose, I would say the best approach lies between Musk and Bessent: current spending in the bill should be reduced further, while some tax cuts and policies supporting domestic industry should continue.
Liu: Perhaps Musk could reach some kind of balancing arrangement with Republicans during the midterm elections and achieve that result?
Fan: We can only wait and see. In any case, at least in the short term, we do not need to be overly concerned about the U.S. debt problem. I also believe the Fed will continue its rate-cutting cycle over the next few years, which will be positive for both debt and the economy.
Trade Negotiations
Liu: Let’s look at the progress of trade negotiations. August 1 is an important deadline. Among America’s major trading partners, the EU’s situation remains uncertain. How do you view the outcome of U.S.–EU negotiations?
Fan: I think Japan’s case provides a useful reference. Japan initially took a very tough stance, but ultimately reached an agreement with the U.S. that both sides could accept.
Based on the U.S.–Japan trade negotiation outcome, one possible scenario is that the EU partially opens its market, commits to purchasing certain U.S. products, and pledges to make some investments in the United States. In return, the U.S. moderates its tariffs on the EU.
Overall, I think the negotiation risk is manageable. Even if the situation escalates briefly around August 1, it should de-escalate quickly, because both sides understand each other’s circumstances and intentions relatively well.
Liu: So if markets become volatile around August 1, that could be a buying opportunity?
Fan: That is currently my view, assuming there are no other sudden or unexpected events.
Liu: In aggregate, what do you think the medium- to long-term impact of these trade negotiations will be on the U.S. and the world?
Fan: This is too complex to discuss comprehensively, and it cannot be predicted precisely. But broadly speaking, I see several implications.
First, trade negotiations will be an ongoing process. For now, we can only say that the most uncertain moment has passed.
Second, trade negotiations may change global trade flows to some extent. Because China’s industrial chain is being constrained in its trade with the U.S., parts of that chain may gradually relocate to other countries, rather than simply remaining in China and rerouting exports. During this process, the countries where these industrial chains land will have an opportunity to develop their own supply chains. That is positive for them.
Liu: For example, some Southeast Asian countries.
Fan: Yes.
Third, the U.S. trade deficit may improve to some extent in the short and medium term. But the long-term outlook remains uncertain. If trade policy benefits the U.S., then the U.S. economy may become stronger relative to other countries. At that point, U.S. external purchasing power would also increase, other countries would have greater incentive to invest in and export to the U.S., and the dollar could strengthen as a result. The trade deficit could then rise again.
If the trade policy does not benefit the U.S., the U.S. may reduce tariffs, and conditions would revert to the previous pattern.
Liu: So the dynamics here are quite complex. How can the U.S. solve the trade-deficit problem?
Fan: As long as the dollar remains the world’s reserve currency, it is almost impossible for the U.S. to sustainably turn a trade deficit into a trade surplus over the long term.
However, the U.S. can continuously negotiate better trade alliances and improve control over domestic fiscal spending to ensure that the trade deficit remains within a certain range relative to GDP.
Medium- to Long-Term Asset-Class Outlook
Liu: Looking further out, can you provide some analysis and outlook for major asset classes?
Fan: My view has not changed. The U.S. equity market will continue to be in a bull market going forward. The underlying drivers are mainly threefold: structural demand for AI and robotics, the domestic real-economy investment cycle driven by the Big Beautiful Bill, and the Fed’s rate-cutting cycle.
At the same time, household and corporate balance sheets in the U.S. remain relatively healthy, so the probability of a major recession is low. Uncertainty around tariff policy should continue to decline over time.
Because economic growth is likely to be stronger than it was before the pandemic, long-term Treasury yields will probably be somewhat higher than pre-pandemic levels. However, the probability of a sharp surge in yields is also low. Therefore, for Chinese investors seeking fixed-income products to hold to maturity, long-term U.S. Treasuries remain a good option.
At the same time, as crypto legislation is implemented, we believe Bitcoin and Ethereum will continue to grow over time.
Gold can serve as a hedge against geopolitical risk. It is also a hedge against the risk of falling real interest rates, as well as uncertainty surrounding U.S. debt and deficits. We will continue to hold it.
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