The House passed legislation overturning President Trump's emergency declaration along the southwest border (see below) and two separate bills to impose further background checks on gun sales. The Senate confirmed a handful of Trump administration nominations, including Andrew Wheeler to serve as administrator of the Environmental Protection Agency.
The House will vote on an ethics bill. The Senate will vote on various Trump administration nominations.
Financial Services Issues
The Export Import Bank (Ex-Im), which extends lines of credits and guarantees to U.S. exporters, has been operating for years with multiple vacancies on its board of directors. This resulting lack of a quorum has prevented Ex-Im from approving credit deals above $10 million, thus depriving major exporters like Boeing, GE, and Caterpillar of an important source of trade finance. This week, in testimony before the House Ways and Means Committee, U.S. Trade Representative Robert Lighthizer expressed concern about the situation and its negative impact on U.S. competitiveness. The Senate Banking Committee also this week took a small step toward remedying the problem by approving several Ex-Im nominees. However, the nominations were approved by the committee last year but ultimately blocked on the Senate floor by Republican Senators who view the agency as corporate welfare. The broader debate about Ex-Im will be in the spotlight not only because of the ongoing trade talks with China (itself an aggressive provider of state-backed subsidies and financing to its exporters), but also because the bank’s charter will expire on September 30. While we expect Congress to eventually pass Ex-Im reauthorization, the Ex-Im nominees likely will continue to stall (and, with them, the ability of the agency to finance important large transactions).
Other Issues in Play
The Mueller Report.
The report prepared by special counsel Robert Mueller is expected to be released in the very near future. Below are a few issues that will be relevant to this report's content and distribution.
- Attorney General Barr. Attorney General William Barr has oversight of this investigation, and Mueller will report his findings to him. Barr will make the decision on whether to publicly issue the report or keep it confidential. With keen interest from Congress and the public in seeing the contents of Mueller's report, Barr will be under pressure to release at least parts of it. Given that Mueller's report is likely to be replete with confidential information, Barr may instead opt to issue his own redacted summary of the investigation. There is no set timetable that the Attorney General has to follow, but we believe he will act swiftly.
- Ammunition for Democrats? A key question is whether the report will give congressional Democrats any additional ammunition to advance a potential impeachment of President Trump. The report may have a mixed conclusion in the sense that it could clear Trump personally on the key issue of collusion with Russia while still identifying other instances of wrongdoing. The full extent of the report's findings is not yet known but obviously will be critically important to the direction of the Trump presidency over the next 22 months.
- Michael Cohen. Amidst all of the media buzz surrounding the former Trump lawyer's Hill hearings, we had two big takeaways. On the one hand, there was no further evidence of collusion by the President. On the other, Cohen provided more detail on potential financial crimes committed by the President while he was in the private sector. The second point is a big deal for congressional Democrats who will more aggressively focus on this avenue of investigation. They won't give up on potential collusion, but this allegation seems to be losing steam in favor of the new focus on potential financial crimes. More broadly, the hearings are unlikely to sway voters, most of whom have largely settled views on the President and Michael Cohen. Nevertheless, allegations of wrongdoing and potential evidence of bad character are never helpful to a President.
Emergency Declaration on Border.
As expected, the House voted, largely along party lines, to overturn the President's declaration of an emergency on the southwest border. The measure now moves to the Senate, where a vote could occur next week. The bill needs only a simple majority (not the typical 60 votes) to advance in the Senate. Four Republicans would need to join all Democrats to pass it. Three Republicans – Senators Susan Collins (ME), Lisa Murkowski (AK) and Thom Tillis (NC) -- have already indicated their support. This will be a tough vote for another handful of Republican senators, particularly those up for re-election next year in swing states like Colorado and Arizona. Even if the Senate passes the bill, the President will veto it and neither chamber will be able to overturn it with a two-thirds vote. The President's emergency declaration will stand and the controversy will hardly die down, particularly with potential court intervention around the corner.
Potential US-China Trade Deal.
Intense US-China negotiations over the last week have produced some agreement in the areas of currency, market access (particularly for the US financial services and agriculture sectors) and enforcement parameters. Other significant "structural" issues, such as forced technology transfers, Chinese government subsidies to exporters and intellectual property protections, remain unresolved and not close to agreement. President Trump has been very bullish on the potential for a deal, leading many business leaders and lawmakers to fear he will ultimately settle on a very modest deal that won't materially change how China engages in the global trading system. The President has postponed plans to further increase tariffs on relevant Chinese imports after March 1 and said he hopes to wrap up a deal with Chinese President Xi in late March at his home in Florida. No date has yet been set for this likely meeting. There are still many hurdles to clear before a substantive deal can be finalized, but both sides seem to want a deal so badly that it is hard for us to envision one not materializing sometime in late March or April.
Broader Tariff Relief?
As US-China negotiations continue, parallel discussions with trade allies affected by higher steel and aluminum tariffs also are heating up. These talks are expected to result in the elimination of the 2017 steel and aluminum tariff increases. Since many lawmakers also oppose these tariffs, the White House believes that their elimination could help muster the votes needed to pass the US-Mexico-Canada (USMCA) trade agreement in Congress this summer. Combining this tariff relief with a potential deal with the China that would scale back or eliminate the higher tariffs on Chinese imports (and on US exports into China) would be a big boost to the economy and markets. We'd rate this prospect as very likely.
Medicare for All?
To much fanfare, House Democrats unveiled legislation this week to provide "Medicare-for-all." The bill will create a single-payer, government funded health care system with no private insurance in two years. With over 100 cosponsors, this proposal is a rallying cry and litmus test for many Democrats, particularly those running for president. House Speaker Nancy Pelosi (D-CA) and her leadership team have given the bill a chilly reception, and it was not listed on a group of issues that the Speaker identified as priorities this year. Rather, the House may choose to strengthen the Affordable Care Act (Obamacare) and/or expand Medicare eligibility to those between 55 and 65 years old. "Medicare for all" legislation is unlikely to advance in either the House or the Senate. Instead, it is another area (like the Green New Deal and free college tuition) where Democrats, both inside and outside the House, are split. House Republicans experienced similar unity problems when they were in the majority, and Democrats are starting to suffer through the same growing pains in their return to power.
Created by the comprehensive 2017 tax reform bill, Opportunity Zones (OZs) provide preferential tax treatment for investments in certain economically-distressed areas. Investors can defer and even reduce their tax liability from realized capital gains if those gains are reinvested into an OZ vehicle. Republicans believe OZs will help revitalize certain cities like Detroit that have been economically strained for decades. The rollout of investment opportunities in OZs has been limited thus far in part due to regulatory uncertainty. The Treasury's issuance of proposed parameters of the program generated more questions than answers. The department is expected to follow up on last year's release with a second round of regulations in the coming weeks that should outline greater investment options.