Shaping a Trump Policy Template


2016-12-03 By Harald Malmgren

The election of Donald Trump as the next US President surprised most pollsters, political leaders in both major political parties, and the mainstream media. Broadly based political unrest seems to have materialized in the form of a populist revolt against Congress, the President, federal bureaucracy, lobbyists, and leadership of both Republican and Democrat parties.

Donald Trump believes he has achieved the Presidency without being bound by political promises and obligations to large financial supporters.

In other words, Trump will not feel limited by Republican Party orthodoxies, and will likely feel free to intervene in specific business interests and disputes when he sees that as effective.

World financial markets responded to Trump’s unexpected election by embarking on a surprisingly strong US stock market rally.

The market upturn was surprising in 3 respects: Just before the elections, some of the biggest fund managers publicly declared their expectations that stock markets were about to fall.

Instead, a strong, sustained upward breakout materialized.

Second, even though Trump had not presented a specific economic policy agenda, investors assumed that his aim would be to accelerate economic growth and that whatever measures he chose would likely be inflationary.

President Elect Trump delivering his victory speech at the New York Hilton, November 9, 2016.
President Elect Trump delivering his victory speech at the New York Hilton, November 9, 2016.

Third, investors seemed to assume Congress under its emergent Republican majority in both House and Senate would join in unified implementation of whatever Trump proposes.

However, it is unlikely that wide differences among Republicans in Congress will vanish, and that strong Republican aversion to further growth in Federal debt will be easily overcome.

The post-election rally also overlooked the political reality that devising and approving new legislation on taxation, a healthcare substitute for Obamacare, trade, immigration, and regulatory deregulation necessarily would take many months.

It is inevitable that after the White House introduces draft legislation in any of these policy areas a deluge of interest groups would fall upon Washington in efforts to “revise”, neutralize, or nullify proposed legislative changes that would directly affect them.

Republicans in both the House and Senate are still strongly divided. In recent years party “teamwork” fell away and was replaced by aggressive rivalries of power and agendas for action. Previous Speaker of the House John Boehner was rendered powerless by repeated insurrections within his Republican majority. Ultimately this resulted in his resignation and retirement from Congress.

Current Speaker of the House Paul Ryan is distrusted by some of the House Republicans, especially among the House Freedom Caucus. That caucus group only numbers around 40, but enough to halt procedural steps and force the leadership to seek votes among the opposition Democrats.

Ryan has been able to overcome serious party insurrections so far, and the emergence of a new Republican President will likely provide a few months of “honeymoon” cooperation.

Thus, for the next few months Republicans will likely work together in devising legislation.

However, Republican rivalries with each other and with the President will likely resume later in 2017 and definitely will be more disruptive in 2018 as the next round of Congressional elections gains momentum.

Many Republican politicians seem to be assuming that Trump will only seek one term as President, so jockeying for the Presidential nomination for the 2020 Presidential elections has already begun.

Near the end of November, Trump’s Treasury Secretary designate, Steven Mnuchin, began to discuss details about the taxation reforms that would be proposed by the new Administration. Among the proposals under consideration would be significant cuts in corporate rates of taxation, and cuts in personal income taxes for “the middle class.” The middle class was not defined.

Taxation of the wealthiest households would be altered by reducing various “deductions” such as home mortgage interest, in such a way that tax rate cuts would be offset by elimination of tax deductions, leaving the net effect of changes in taxation neutral.

This technical complexity immediately gave rise to an awakening of lobbying activities on behalf of various groups that might be adversely affected, such as mortgage providers and homebuilders.

Credit: Europeans for Trump
Credit: Europeans for Trump

Historically, major changes in taxation have always required major revisions to the US Tax Code, which entail thousands of pages of legislative changes. Typically, major tax legislation passed in one Session of Congress has in past years been followed by a second round of new legislation in the following Session of Congress, in the form of a “technical corrections bill.”

As virtually every interest group in the US is potentially affected by tax revisions, lobbying on behalf of all interest groups ranging from charities to corporations and financial institutions is directly involved. This requires each member of Congress to listen to a wide variety of interest groups and balance the different constituent interests one against another.

The process of drafting and approving major tax reform has often in past years taken 18 months. In other words, taxation changes might not be applicable to the US economy until 2018 or possibly 2019.

There would be little impact on the economy during the first half of 2017.

Legislation to cancel Obama’s healthcare insurance reforms might be passed early in the new Congress, but the effective date would likely be set at some future time when a new healthcare insurance program was ready to be proposed for Congressional action.

Trump might take some administrative or enforcement actions on immigration, but a change in immigration law would likely take months, not days.

Trump has already declared that he would not pursue TPP, and that he expected to begin placing greater emphasis on negotiating or renegotiating bilateral trade agreements. The President has authority to make such changes in US trade policy.

However, the President does not have authority to alter present US trade laws.

Article 1 of the Constitution specifically provides that Congress shall regulate foreign commerce. In other words, the President may engage negotiations with other countries. He cannot negotiate Treaties or other agreements that might require alterations in current trade laws without approval of enabling legislation by both House and Senate.

To alter US trade restrictions, the President must propose to Congress changes in US trade law, and only the Congress can then consider and approve or revise present trade law to adapt to Presidential proposals.

The President does not have unilateral authority to alter either access for or restrictions on US imports. There are exceptions for Presidential action in the event that he determines that antidumping action or countervailing duties are required to offset “unfair trade.”

In past years, Presidents have sometimes negotiated “voluntary” export restrictions implemented by other governments in order to relieve competitive stresses on US agricultural or industrial producers, but such voluntary agreements would not fall within the framework of US trade law.

Although Donald Trump has openly criticized past US trade agreements and promised to renegotiate some or all of them, he would need Congressional approval of changes in US laws that have already been made to accommodate past trade agreements.

In the case of the NAFTA agreements with Canada and Mexico, Trump has said he wanted them to be revised. The governments of both Canada and Mexico have already declared willingness to consider renegotiation, but of course they would also likely wish to make revisions of interest to their own economies.

Renegotiations would likely be a multi- year process, entailing revisions by Congress in current trade laws.

Trump has made clear his interest in scaling back Federal regulation of businesses, particularly small businesses and regulation of financial markets. Changes in labor market, environmental, and food safety regulations are likely under his Presidency.

Many regulations could be eliminated by Presidential action, but some would require changes in law, which Congress would have to enact.

President Obama also used Executive Orders and Presidential Memoranda signed by him personally to provide authority for regulation and law enforcement changes. It is said that he used these Presidential authorities in thousands of cases.

President Trump could eliminate all or much of this accumulation of unilateral Obama Presidential orders or memoranda by simply cancelling them. This could result in dramatic rollback of environmental regulations, for example.

In other words, Trump clearly will set in motion a new approach and shape his own template for policies and governing.

But the interactivity between Trump and the Congress will shape new outcomes as the President shapes his approach and Congress adjusts to the new reality; and in turn, Congress and its divisions will shape the new realities in the wake of the election of President Trump.

It is in foreign policy where the President will have more freedom to put his stamp on policy from the outset, and he is already in the process of doing so, even before taking office.

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A Trump Presidency: Shaping a Way Ahead