Dispatches from the Potomac#21 | Bleak Prospects for the Trump Regime are Unavoidable

Although continuing struggles were predicted, the results so far are worse than expected. Moreover, there are no signs that things will improve. This is my frank assessment regarding the activities of President Trump, who has been in office for more than half a year.

This is a translation of an article originally written in July for publication in the August 2017 edition of the Marubeni Group Magazine, M-SPIRIT.

Washington D.C. Office General Manager, Marubeni America Corporation    Takashi Imamura

Obamacare Replacement Bill at a Standstill

Thus far, there have been no important bills enacted since the inauguration of the Trump administration. Since winning the presidential election last fall, President Trump insisted that the administration would promptly abolish and replace Obamacare (Patient Protection and Affordable Care Act), and then “Make America Great Again” by implementing tax reforms and large-scale infrastructure investment. The market expected to see the same kind of executive ability that Trump displayed in his own business activities. Unfortunately, this administration has stumbled from the start. Since Republicans control both the upper and lower houses of Congress, it would seem that passing bills should be easy. The health care reform bill could not be passed due to the internal conflicts within the Republican Party. An early success with the Obamacare revision should have provided momentum for the administration; but, the bill foundered in the Senate, resulting in the valuable first six months of the administration being wasted. President Trump has repeatedly insisted that Obamacare was collapsing, but in fact, it was his revision that has collapsed.

The derailing of the health care reform bill has revealed that President Trump has very little interest in enacting legislation, and has raised suspicions about his abilities as a politician. President Trump only cares about whether the bill can get through Congress; he has no interest in the specific content of the bill, or about reforming the medical insurance system. This is apparent from the fact that he has continued to trumpet the claim that insurance premiums will be reduced for many people, in spite of the fact that the bill has content that is disadvantageous to the white, working-class people who are Trump supporters, including a reduction in the support for low-income earners. After congressional representatives were invited to the White House by President Trump to ask for their approval of the bill, there was a leak of their suspicions that President Trump did not understand the bill or the fundamentals of the medical insurance system. It is unlikely that the uninformed President Trump could persuade any lawmaker to vote in favor of the bill. The lack of success of this bill is not only the responsibility of the Republican leadership in the Senate; a large part of the blame belongs to President Trump.

Trump Administration Will Continue to be Tested

President Trump and the Republican Party planned to recover by making tax reforms, but there are many obstacles. Before the question of tax reforms can be tackled, the deadline for the current budget and raising the debt ceiling is coming up this fall. If the internal conflicts within the party continue in the same way as on the Obamacare reform bill, there is a risk that the government agencies will be closed for the first time in four years, raising fear of a default on US Treasury debt. This increases the risk of confusion in the currently stable financial markets, not only in the US, but worldwide. I personally think that the probability of this is low, but it is hard to be optimistic after seeing the lack of coordination between the Republican congressional leaders and the Trump administration during the Obamacare revision bill debacle.

Even if the budget and debt ceiling issues are overcome, the subsequent tax reforms will be a challenge. For the initial bold target of permanently reducing the corporate tax rate to 15 - 20%, a course correction is unavoidable. The border-adjustment tax proposed by the Republicans in House is not popular within the party, because with the Obamacare revision bill stalling, no revenue source for tax cuts can be found. As ever, President Trump does not seem to have the inclination to lead the tax reforms himself, and does not seem to have a thorough understanding of the tax system in the first place. There is a deeply rooted conflict within the Republican Party between the conservative faction emphasizing fiscal restraint, and the faction that prioritizes lower taxes, even if it means a budget deficit. For the Trump administration and the Republican Party leadership there is no momentum to achieve tax reforms through bipartisan cooperation with the Democrats. If things continue as they are, I think it is highly likely that the tax reforms will collapse in the same way as the Obamacare reforms; or, if achieved, will only be on a small scale.

Being Put to the Test

Whether the budget and debt ceiling causes confusion, or even if it is avoided, if the tax reforms stall again, the approval rate for President Trump, which is already at a historic low, will probably drop even lower. This means that those who have been staunch supporters of the Republican Party in the past are starting to withdraw their support of President Trump. As President Trump scrambles to strengthen his position in the 2018 mid-term elections, while aiming toward re-election in 2020, it is highly probable that there will be a tendency toward more protectionism, and a choice of more populist policies in order to solidify his support base.

After the presidential election in fall last year, the market expected Trump to quickly make bold policy moves that would not be taken by existing politicians and to disprove the common belief that stagnation of the US economy is unavoidable. It was thought that this ability to make breakthroughs would be enough to offset the handicap of having limited political experience. Since his inauguration, however, this breakthrough ability has not been seen, only the lack of political experience is apparent. The Republican Party supporters, the white working-class, and the markets are reaching an important point after half a year of the Trump administration, where their belief is being put to the test; is the breakthrough ability expected from President Trump a sham? If President Trump does not make any effort to understand important bills and the relevant issues, and does not maintain a strong commitment to get the bills passed, this “breakthrough ability” will end up being simply talk. Unfortunately, on this point, I am not optimistic.