Donald Trump speaks at a rally in Manchester, New Hampshire, on Nov. 7, 2016, the night before Election Day.
Suzanne Kreiter | Boston Globe | Getty Images
For all the attention the Democratic 2020 hopefuls garner, most on Wall Street still believe the election is President Donald Trump’s to lose.
A second term for the president would see the administration go after the globe’s multilateral trade institutions, multiple Wall Street policy analysts said. It would also allow Trump to further pressure Federal Reserve Chairman Jerome Powell and eventually replace him when his term expires in 2022 with a more amenable monetary policy head, according to analysts.
Cowen policy analyst Chris Krueger said a reelection victory could also embolden Trump to pursue big-ticket spending items and blast anyone he believes is impeding economic growth.
“I think if he wins reelection next year, we’re going to see Trump totally unchained,” Krueger said. “He’s going to do [to Powell] what he did to Jeff Sessions.”
The White House did not respond to multiple requests for comment on this story. The Federal Reserve Board of Governors declined to comment.
To be sure, a split Congress is likely to keep in check whoever wins the White House in November. Republicans are expected to keep the Senate and Democrats the House of Representatives, with political betting site PredictIt showing the GOP’s chances to keep the Senate at 66% and the Democrats’ chances to keep the House at 74%.
That should temper even the most aggressive policy proposals and check Trump’s efforts to rewrite longstanding trade deals between the U.S. and its economic partners.
Going after the WTO?
At a June 2016 rally, the then-candidate told supporters in Monessen, Pennsylvania, that the “catastrophe” of declining manufacturing jobs in the U.S. was thanks to “first, the North American Free Trade Agreement, or NAFTA. Second, China’s entry into the World Trade Organization.”
The president’s priorities haven’t changed much.
One of the administration’s key diplomatic wins came last week, when the White House reached an agreement with House Democrats to move forward with its replacement of the NAFTA.
“Friday was probably the most momentous day in trade history ever. That day we submitted the USMCA, the Mexico-Canada Agreement with bipartisan support and support of business, labor, agriculture,” U.S. Trade Representative Robert Lighthizer told CBS’s “Face the Nation” over the weekend.
Also Friday, China and the U.S. announced that they had reached a long-expected “phase-one” trade deal. The pact, which has yet to be signed, includes provisions to ease some of the tariffs Washington had imposed on Beijing in exchange for promises by China to buy American agricultural goods.
But while Trump can seemingly chalk up two big wins over the last week, the administration still has room to run.
Now, Lighthizer, Treasury Secretary Steven Mnuchin and Director of the White House National Economic Council Larry Kudlow will be free to address concerns with the broader trade system that pesky deliberations over the USMCA and China forced to back burner for much of the past two years, according to Clete Willems, a former White House trade advisor.
Those within the Beltway expect a rejuvenated White House to take its battles against economic rivals like China to institutions like the World Trade Organization, the Switzerland-based forum established in 1995 that helps regulate international trade, Willems said.
Robert Lighthizer, U.S. trade representative, left, speaks with Peter Navarro, director of the National Trade Council.
Andrew Harrer | Bloomberg | Getty Images
“I think the U.S. has changed the narrative in Geneva and they have utilized their leverage with respect to the World Trade Organization,” Willems, an eight-year veteran of the Office of the USTR, told CNBC.
“They’ve put a lot of proposals on the table with respect to how to revitalize the negotiating arm,” he continued. “But I think completely understandable: The USTR only has so much bandwidth and I don’t think there’s been as much focus on that in the current moment as there could be.”
A deadlock between the U.S. and other WTO members threatens to hamstring its top court from ruling on a litany of lawsuits over the Trump administration’s liberal use of tariffs.
But top American trade officials argue they’re justified in their efforts to block the appointment of WTO judges and cripple the trade organization until it evolves to start addressing China’s market-distorting capitalism.
The U.S. thought the WTO was going to be “a forum where companies went to narrowly resolve disputes between each other,” Willems said. “The administration needs to figure out a way that it can get more ambition out of the EU when it comes to WTO reform issues. More ambition on China, more ambition on WTO.”
The U.S. pressure campaign at the WTO was on full display last week, when the USTR’s office published a list of additional European goods it is now considering for tariffs up to 100% stemming from its high-profile crusade against Airbus.
“The WTO decided in favor of the United States after many years of litigation on this Boeing-Airbus case. And we put in place tariffs on $7.5 billion worth of products. We’re looking at that, we may increase that,” Lighthizer told Fox Business Network on Tuesday. “Our objective is to get some kind of a negotiated solution. But we have a very unbalanced relationship with Europe.”
“There’s a lot on the plate. As you know, this is something the president cares about: He thinks about it every day,” he added. “He wants manufacturing jobs back here. He wants services workers to make more money. He wants farmers to reverse this trend in income. So there’s a lot — a lot — to do.”
The Sino-American spat is also on display at the World Bank, where U.S. lawmakers and investors say China takes advantage of supportive loans designed for middle- or low-income countries.
Mnuchin agreed last week with Rep. Anthony Gonzalez, R-Ohio, that China should be “graduated” from the institution’s International Bank for Reconstruction and Development.
Gonzalez is working to pass a bill that would effectively pass Beijing out of the World Bank’s supportive loan program. U.S. lawmakers argue that China should not qualify for U.S.-backed financing to in turn lend billions of dollars to developing countries to build infrastructure and potentially threaten American geopolitical interests.
But if Trump is serious about signing new trade agreements, he will invariably need the help of Congress, which holds the ultimate power to ratify deals.
Lighthizer, who spent much of his summer and fall haggling with Democrats over labor, the environment and intellectual property, acknowledged as much to CBS.
“We had an election and the Democrats won the House,” he said in response to a question about why Democrats claim victories in the USMCA.
“It was always my plan, and I was criticized for this, as you know, it was always my plan that this should be a Trump trade policy,” he added. “And a Trump trade policy is going to get a lot of Democratic support.”
Notwithstanding congressional approval, Trump and his appointees are uninhibited in the deals they broker and — for the foreseeable future — the trade restrictions they impose.
“The role of Congress is obviously important in many respects. … I think Lighthizer has worked very hard to accommodate the interests of Democrats” in USMCA talks, Willems said.
“On the other hand, this administration has started to utilize a lot of tools that have been underutilized in the past that don’t require congressional consent,” he added. “What you’ve seen over time is the strength of the executive. You’ve seen the executive branch flex its muscle.”
Pressure on Powell
When the Federal Reserve fails to adjust rates in the direction — or with the speed — Trump likes, he tends to take his anger out on Powell.
The president’s frustration with his choice to lead the Fed has been so routine and so personal that it’s almost a guarantee that Trump won’t renominate Powell at the end of his term in 2022, according to Raymond James Washington policy analyst Ed Mills.
“For Powell, if Trump is reelected it’s pretty clear — it’s extremely unlikely that he is renominated to a second term,” Mills said. “And if a Democrat gets elected, I think they’d want their own Fed chair. So, it some ways, Powell is more likely than not gone regardless of the outcome of this election.”
Trump has for years demanded the Fed keep interest rates low and argued that comparatively high U.S. borrowing costs undermine his efforts to erase trade deficits. Congress, which oversees the Fed, tasks it to adjust interest rates to maximize employment and keep prices stable, a job it’s done well over the last few years with unemployment at a half-century low 3.5%.
The president, however, still tends to push the Fed to juice the economy further.
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN,” Trump wrote on the morning of Sept. 11.
“It is only the naivete of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads,'” he added.
The president’s current displeasure with the Fed may have contributed to his plans to nominate Judy Shelton, whose thoughts on monetary policy tend to run unorthodox, to be a Fed governor.
Though Shelton argued as recently as 2017 against a central bank’s tampering with interest rates to edit the value of a country’s currency, she wrote in a Wall Street Journal op-ed this summer that she believed U.S. rates should be reduced to “ensure maximum access to capital.”
Powell has repeatedly said he plans on serving out his four-year term as Fed Chair.
Asked in July by Democratic Rep. Maxine Waters, chair of the House Financial Services Committee, “If you get a call from the president today or tomorrow and he said ‘I’m firing you. Pack up and it’s time to go.’ What would you do?” “Of course I would not do that,” Powell replied. “The law clearly gives me a four-year term and I fully intend to serve it.”
The president’s fierce criticism of Powell is an about-face for the president, who in November 2017 wrote that it was his “pleasure and great honor to announce my nomination of Jerome Powell” to lead the central bank.
“He’s strong. He’s committed. He’s smart. And if he is confirmed by the Senate, Jay will put his considerable talents and experience to work leading our nation’s independent central bank,” Trump said at the time.
Tax cuts 2.0?
As far as domestic policy is concerned, Mills said a second-term Trump White House would focus on a couple of key priorities that could garner support from House Democrats.
The first could be a second round of tax cuts, known around the administration as “Tax Cuts 2.0” on the heels of its landmark Tax Cuts and Jobs Act that cut the corporate tax rate to 21%.
Last month, Kudlow told CNBC that Trump asked him to investigate such a plan but cautioned that it’s still “way too soon” to delve into the specifics of a plan. The tease from Trump’s top economic advisor came just after The Washington Post reported that Trump’s top counselors were exploring a proposal to reduce “middle class” tax rates to 15%.
“We’re in very preliminary stages right now,” Kudlow said in November. “This thing will not be completed for many months, as I say, it will be released as a strategic pro-growth document for the campaign. We want to see middle-income taxpayers get the lowest possible rates.”
Trump’s focus on another middle-class tax cut appears more political than practical. Democrats, who are favored to keep control of the House in 2021, are unlikely to approve GOP legislation to slash tax rates.
But should the GOP surprise on Election Day and see a burst of support, it’s not out of the realm of possibility, Raymond James’ Mills said.
“In a reelection victory of President Trump, it is not inconceivable that those coattails don’t bring with it an all-Republican government. And that’s really where the Trump 2.0 agenda would go into hyperdrive,” he said.
