For all the attention the Democratic 2020 hopefuls garner, many on Wall Street are preparing for a second term for President Donald Trump and what that might mean for economic policy.
A second term 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.”
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%.
Going after the WTO?
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.
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.”
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.
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.
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.”
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%.
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.
Reference: CNBC
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