Impeachment Brawl Dims Chances for Trade Deals, Drug Bill, Budget

Insights and Market Perspectives

Author: Greg Valliere

September 26, 2019

Print

FIRST, THE OVER-RIDING POINT: Despite all the drama yesterday, the bottom line hasn’t changed — there aren’t 67 votes in the Senate to convict Donald J. Trump. Nevertheless, the likelihood of more leaks and bombshells will have a profound impact on 2020 politics and the Congressional agenda, as we describe below.

AFTER TALKING WITH SOURCES YESTERDAY, we think chances of getting much done in Congress will fade as the impeachment brawl consumes all the oxygen on Capitol Hill. Three issues stand out:

1. It just got harder to approve the U.S.-Mexico-Canada trade deal that would replace NAFTA. This would be a bitter pill to swallow for pro-business lobbyists, who have the votes in both houses to prevail. The key was always Nancy Peolsi, and now she has bigger priorities. In this poisonous climate, chances of ratifying the USMCA have gone from a 60% two weeks ago to 40% now — not welcome news for Justin Trudeau, who needs all the help he can get.

2. Drug pricing legislation had only a 30% chance before the impeachment probe, according to our friends at Heldman Simpson Partners. Now they see even lower odds for a drug bill or any other health legislation passing year.

3. Passing a 2020 budget always looked like a grind; none of the 12 appropriations bills have been passed, which will require a continuing resolution extending at least until late November. Trump clearly needs his base now, so he will make the budget fight all about funding a wall with Mexico. In a climate this toxic, a final budget might not get enacted until New Year’s Eve.

A DOMINANT ISSUE IN CONGRESS, OF COURSE, is the 2020 election. The impeachment polls will be crucial, and right now they’re flashing a warning signal for moderate Democrats. Voters may not like Trump, but the public doesn’t want to go through impeachment. Would a crude Trump telephone call really lead to his removal for high crimes and misdemeanors?

PELOSI KNEW ALL ALONG that impeachment is a very high risk for Democrats. Trump now has his foil — an out-of-control leftist House that has abandoned consideration of legislation; instead, we’ll have an impeachment debate that the country doesn’t want and most congressional Republicans will mock.

WHILE WE DON’T SEE MORE THAN A 20% CHANCE that the Senate would convict after a trial, the great risk for Trump is that the public will get a serious case of “Trump fatigue,” and vote him out of office simply to get some peace and quiet. He surely must fear that, but he’s incapable of dialing it down; he has no filter.

THUS WE CONCLUDE THAT TRUMP’S RE-ELECTION PROSPECTS have faded a bit in the past week, even as chances of removal still look very unlikely. And we reiterate: Trump is targeting the wrong opponent — it’s not Joe Biden he has to worry about, it’s Elizabeth Warren, who continues to surge in new polls.

WHAT DOES THIS MEAN FOR THE MARKETS? Unless there are explosive new allegations, this partisan impeachment process will be just background noise for investors. But if Trump and Rudy Giuliani spin out, overplaying their hands, there will be an opening for Warren — and that, unquestionably, would be a huge concern for the markets.