The Trump Slump and the North American Economy in 2018

Donald Trump created high expectations as he became president in January 2017. These expectations were fueled by his extensive list of campaign promises (https://www.washingtonpost.com/news/post-politics/wp/2016/01/22/here-are-76-of-donald-trumps-many-campaign-promises/?utm_term=.bb0ed2101fa1 ).

While Trump made much of his “Make America Great Again” slogan, one can only look back on the past year as a major failure. While a high quality conservative judge was appointed to the Supreme Court and some executive orders were signed, there are few other successes to point to. Despite having control of all three branches, the Republicans could not pass any major legislation during the past 10 months of 2017. America withdrew from the Trans Pacific Partnership Agreement, a major 12 country trade pact and the Paris Climate Change accord, that has been signed off by every other country other than the United States. While these actions may appeal to the Trump base, they are not creating jobs in America.

Four emerging developments threaten to stifle the Trump presidency. They are the passage of a Tax Reform bill, the Muller investigation into Russia meddling into the U.S. election, America’s threat to pull out of NAFTA. and the sexual harassment scandals that are emerging in the political, entertainment and media sectors.

The Tax Reform Bill

While one could debate the merits of the tax reform bill, specifically tax cuts for the wealthiest Americans while reducing health insurance for millions of lower income Americans, and the addition of $1.5 trillion to the US debt over the next ten years, the key issue is whether Republicans in the Senate can pull together enough votes (or entice some Democrat votes) to pass this signature legislation.

To obtain Senate approval, the strategy appears to be to load up this bill with a batch of “goodies” for fence-sitting Republicans and for some Democrats. A failure to pass this bill, coming on the heels of the multiple failures to repeal Obamacare, would be a devastating blow to the Trump presidency. It would likely establish him as a “lame duck” president for the remainder of his term in office. On the other hand, passage of this bill would probably play a big part in next year’s mid-term elections since it would give many voters an opportunity to express their dissatisfaction with this legislation and the Trump presidency in general.

The Muller Investigation

The Muller probe into Russian meddling into the last US election seems to be reaching a turning point. Muller’s legal team appears to have former National Security Advisor Michael Flynn in its sights. It looks like they are trying to secure a plea deal in return for some form of immunity from prosecution for his son and/or himself.

If this occurs, this could create a very damaging situation for president Trump and/or his team. If the president can be linked to collusion with the Russians or obstruction of justice, this would be tough for the Trump administration to overcome. It could create a constitutional crisis.

The North American Free Trade Agreement

The NAFTA negotiators just completed phase 5 of a 6-phase process. Little progress is being achieved on the major issues (i.e. trade in autos, dairy products, dispute settlement mechanism etc.). Donald Trump has threatened to withdraw from NAFTA unless America is able to tilt the scales in its favor. Clearly American negotiators are treating the process as a zero-sum game to increase jobs for American workers at the expense of jobs in Canada and Mexico.

The Canadian and Mexican negotiators are pushing back against US pressure. Mexico’s president Pena Nieto is facing elections next year. Capitulating to American pressure would very injurious to has chances for re-election. His chief competitor is strongly pro NAFTA. President Trump’s references to Mexicans as rapists and his insistence on building a wall between the two countries has made him extremely unpopular in Mexico.

Similarly, prime minister Trudeau is also facing pressure from the Canadian auto industry and from dairy farmers to hold his ground. Moreover, the leaders of these two nations have the support of their respective populations. There are millions of American (Canadian and Mexican) jobs that are dependent on NAFTA.

While a withdrawal would not have a major impact on day one, it could have damaging long term consequences. Replacing low cost Mexican jobs with high cost American jobs would raise prices on American made products. This would ultimately be harmful to American citizens and American jobs.

Donald Trump has the option of reaching a last-minute settlement with two of America’s major trading partners or going it alone. Many senators, even in his own party, are strong supporters of NAFTA. If no agreement can be reached, this will have adverse consequences for all three countries and will upend longstanding partnerships with two of America’s closest friends and allies.

The Sexual Harassment Scandals

Then there are the Weinstein, Spacey, Rose, Moore et al sexual harassment scandals. While multiple women have accused aspiring Republican senator Moore of harassing under-age women while he was in his thirties, president Trump, in his desperation to pass a tax reform bill, has spoken out in support of him. One should not forget that multiple women accused Donald Trump of sexual wrongdoing as well. The Access Hollywood tape shows the president speaking out about grabbing women by their genitals. There are indications that these events are a turning point in the history of America.

CBS handled the Charlie Rose harassment scandal decisively and effectively. The leaders of CBS maintained the stature of their organization through their actions. Donald Trump has failed miserably. Even his own daughter disagrees with him.

Women are speaking out all over America about their experiences with sexual harassment. They are no longer keeping their experiences a secret. Women represent roughly fifty percent of the American population. Many of these women, even after the Access video tape disclosure, voted for Trump. Times are changing.

While each of these developments represents a potential “body blow” to the president, collectively they could significantly damage and possibly destroy his presidency. His popularity rating is now in the range of 35%, one of the lowest numbers of any presidency in American history.

Can the Trump presidency survive? He has survived scandals and business failures before. It is hard to bet against him. The American economy is strong. Economic forecasts for 2018 are mostly positive.

This time, there is a set of emerging forces that are beyond Trump’s control. President Trump no longer commands the respect of many Americans. His nasty tweets and his inconsistent messages have undermined his support. He has lost the moral and ethical authority to lead his country.

It is hard to believe the economic and political universes can function independently indefinitely. The mid-term elections are fast approaching. Multiple failures for Trump would likely unsettle the economic stability and growth that North America has been enjoying. This could be a pivotal year for North America.

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