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A Veto-Proof Tariff Revolt Gains Momentum; Trump Gets His Way With the Fed

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Insights and Market Perspectives

A Veto-Proof Tariff Revolt Gains Momentum; Trump Gets His Way With the Fed

Author: Greg Valliere

June 5, 2019

THE REBELLION GROWS: Republicans don’t like to challenge Donald Trump — it doesn’t play well with his rock-solid base — but it appears that a GOP revolt against Trump’s Mexican tariffs is gaining momentum in Congress. At the least, vote counters on Capitol Hill anticipate passage of a resolution rejecting the tariffs — and in the past 24 hours they have concluded that a Trump veto could be over-ridden.

FIRST THERE WILL BE A CRUCIAL SUMMIT between U.S. and Mexican officials later today, with a goal of defining just what, exactly, the U.S. is seeking. The Mexicans have sounded conciliatory, and it’s possible that the new tariffs might be delayed before the June 10 deadline, giving both sides time to negotiate.

TRUMP DOESN’T APPRECIATE THE EXTENT OF REPUBLICAN OPPOSITION to these tariffs, a GOP Hill staffer told us last night. Our source notes that highly respected GOP Senators like Rob Portman and Mitt Romney have the upper hand; pro-business Republicans overwhelmingly oppose the tariffs, and they have told the White House that Trump lacks the legal authority to act.

TRUMP IS UNWILLING TO BACK DOWN for two reasons: First, his base wants a crackdown on illegal immigration; Second, in a perverse twist, the worse the tariff wars look — threatening to further weaken U.S. and global growth — the more likely the Federal Reserve will do precisely what Trump wants: lower the federal funds rate. He knows that a compliant Fed is the key to his re-election.

JEROME POWELL MUST HAVE PLEASED TRUMP yesterday by indicating that the Fed will cut rates if the trade crisis persists, so what incentive does Trump have to quickly end the trade wars? We don’t think there’s enough support within the Fed for a cut at the June 18-19 FOMC meeting — the central bankers probably will wait to see what happens at the G-20 summit late this month.

BUT THE IRONY IS RICH: Trump demanded rate cuts, and now the issue seems to be when and by how much, and all he had to do was intensify the trade wars, which he’s happy to do. Trump can win modest tariff deals by fall, demanding strict compliance, coupled with the threat of re-igniting these disputes if there isn’t compliance — while the federal funds rate probably falls by 50 basis points by year-end.

IT’S ALL ABOUT 2020: By the autumn, it’s possible that Mexico and China will be fearful of much weaker economic growth, and they may have to capitulate, which would be a huge plus for Trump heading into 2020. And if the U.S. markets are happy to see astonishingly low interest rates jump-starting the economy early next year, Trump could run on a 3% unemployment rate.

WHILE THIS PROBABLY IS TRUMP’S GAME PLAN, there are several potential pitfalls — a recession risk later this year, plenty of geopolitical hot-spots, and a Republican party leadership that finally is willing to challenge him. It’s a high-wire act for this unpredictable president, who has to worry that confidence in his tactics is waning on Capitol Hill and elsewhere.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

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©2021 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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