Damage Control at the White House
Author: Greg Valliere
April 3, 2019
FOR A PRESIDENT WHO BRAGS ABOUT HIS DEAL-MAKING, this has been a humbling week. He walked back an impulsive call to revive debate over health reform, and now Donald Trump has been checkmated over shutting down the U.S. border.
HERE’S THE DILEMMA TRUMP FACES ON THE BORDER: If he shuts it down, the economic damage — almost immediate job losses — would devastate wide areas of the economy, such as autos, which rely on parts made in Mexico and shipped through the border.
BUT IF TRUMP RELENTS, as his aides and Republican leaders are urging, it will be portrayed as a cave-in, on the heels of his health care capitulation, as Trump once again backs down after making a proposal that was ill-conceived and poorly vetted. As we have repeatedly noted, Trump often plunges into a complicated issue without any clear end-game (see: North Korea).
THE IDEA OF A BORDER CLOSURE has horrified the U.S. Chamber of Commerce and Republican leaders. “Closing down the border would have a potentially catastrophic economic impact on our country, and I would hope we would not be doing that sort of thing,” Senate Majority Leader Mitch McConnell said yesterday. The Wall Street Journal editorial page chimed in this morning: “It’s hard to imagine a more self-destructive decision, and it wouldn’t solve the border asylum crisis in any event.”
IS THERE A PLAN B? Some Trump advisers are weighing a plan that would allow trade — trucks and trains — to continue, while shutting all other areas of the border. And Trump hinted yesterday that he might relent if Democrats begin to negotiate on border security (an unlikely prospect). So now the suspense will build until Friday, when this erratic president visits the border between California and Mexico and announces, perhaps, what he plans to do.
THANKFULLY, THE U.S. FUNDAMENTALS ARE STILL GOOD — and a more important development this morning for the markets is the resumption of trade negotiations in Washington between high-level U.S. and Chinese officials. The Financial Times reported overnight that the talks are still on track, with only a handful of contentious issues still unresolved; an enforcement mechanism hasn’t been agreed upon. We still expect a deal later this spring.
THE PROSPECT OF A TRADE DEAL and the continued monetary accommodation from the Federal Reserve are more important for the markets than the daily tweets, confusion and damage control from the White House. But this Washington background noise is an irritant, and it will get louder in the second half of the year, when an epic budget battle over spending and the debt ceiling will require close monitoring by the markets.
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