Signs of Rebellion on Mexico Tariffs; Break Up Big Tech? We Don’t Think So
Author: Greg Valliere
June 4, 2019
CONGRESS MAY BLOCK MEXICO TARIFFS: In a defiant mood, Republican congressional leaders returned yesterday from the Memorial Day break prepared to consider a rebellion against President Trump’s tariffs on Mexico. We think they may have the votes to block him; whether they have the votes to override a veto is the key issue.
EVEN IF TRUMP PREVAILED IN A VETO FIGHT, which he did earlier this year, another motion of disapproval would send a signal to the White House that Congress wants to reclaim its authority on trade, and that Trump cannot use tariffs to deal with political issues such as immigration. For the reeling financial markets, this GOP reaction on Mexico would be a modest plus.
REPUBLICANS ARE GRUMBLING that tariffs are a de facto tax increase, likely to weaken the economy and invite retaliation from Mexico, which seems willing to compromise. And lawmakers in both parties worry that new tariffs on Mexico could doom chances of approving the NAFTA replacement, called USMCA. Despite these concerns, sources report that Trump has not been dissuaded as the June 10 deadline for new tariffs approaches.
WHAT HAPPENS NEXT? Most Republicans are waiting until tomorrow’s meeting between a high-level Mexican delegation and Secretary of State Mike Pompeo; a best case scenario would involve concessions from Mexico, followed by a delay in imposing new tariffs as both sides negotiate. Trump could spin that as a victory.
BUT IF TRUMP DIGS IN, demanding iron-clad assurances from Mexico that immigration from Central America will cease, he risks an overwhelming push-back from all Democrats, most Republicans, U.S. businesses — and the financial markets. If Trump doesn’t relent, more high-level departures from his administration would become likely.
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BREAK UP BIG TECH? There’s something for everyone to dislike about the big tech companies, whose self-inflicted wounds over privacy and its crushing of competition have generated the latest stock market scare — could Washington really curb the most successful sector of the American economy just as threats intensify from Chinese competitors?
WE THINK THIS ANTI-TECH CLAMOR IS OVERDONE: The right wing, led by Donald Trump, and the left wing, led by Elizabeth Warren, wants to crack down on Google, Amazon, Facebook and Apple, and now investigations have begun at the Justice Department and the Federal Trade Commission. There’s headline risk, but government sanctions aren’t remotely imminent, in our opinion.
FOLLOW THE MONEY: The industry has pumped enormous amounts of money into Washington lobbying, and — of course — is increasingly lavish with political contributions. There’s no serious legislation that has a chance of passage anytime soon. The Justice and FTC probes are just gearing up, and could take years to complete. Virtually no one is expecting the companies to get broken up.
WE COULD ENVISION some wrist-slapping early in the next decade, perhaps the enactment of new privacy standards and surely some stiff fines for anti-competitive behavior — nothing that would dramatically affect the firms’ earnings; they can afford to pay hundreds of very aggressive lawyers who would delay and appeal and eventually agree to modify industry behavior.
THE RISK, CLEARLY, is headline risk — and we expect the companies to respond by promising the regulators and the public that the industry is capable of internal reforms. Our mantra, as Donald Trump and Elizabeth Warren blast away at the industry, is to remember that the pro-business Senate is the ultimate firewall, unwilling to punish the most successful industry in our lifetimes.
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