Browsing posts in: Public Policy

A Contrarian Take on the Trade War

Last year, the United States imposed a 10% tariff on $200B worth of Chinese goods with a 25% tariff scheduled to take effect at the end of 2018 [1]. In December, President Trump and President Xi Jinping announced a temporary reprieve, postponing further escalations for another 90 days [2]. By all accounts, both sides need a deal. China’s economy is slowing down much faster than expected, and there are growing concerns about the impact of the government shutdown. Both sides show willingness to deal, with China’s Vice Premier scheduled to meet with US Trade Rep Lightzhier and Treasury Secretary Mnuchin later this month [3].

Despite public overtures, Chinese concessions, and a need on both sides, we should be skeptical. The wildcard remains, and has always been, President Trump. He needs a win, badly. 51% of the American public blames him for the shutdown [4]. His approval ratings, though declining, remain stuck between 40%-44%. On the surface, one might think this statistic is meaningless. Trump won the 2016 election with historic disapproval numbers and he doesn’t need much more than ~44% to win re-election due to his strengths in the electoral college. However, there are emerging signs of weakness. White voters without a college degree, a core constituency also concentrated in swing states, are at their lowest levels. His approval rating among this group has fallen 6% [5].

Taking a tough stance on China remains one of the few ways to regain the support of this demographic. Anti-trade, anti-China, and anti-Mexico rhetoric helped Trump win these voters, and it’s likely that he’ll use it again it to win them back. The implication is worrying: Trump is willing to throw negotiations with the Chinese to look tough, save face, and show that he’s standing up for one of his campaign promises. If he meets the Chinese halfway, he scores economic and political wins but not the wins he needs to regain the support of his base. Trump would rather have a 42% approval rating and 90% with his base than a 45% approval rating and less support with the base. The base shows up to vote.

If Trump pursues this approach, financial markets will plummet. It’ll erode one of Trump’s core messages for re-election: “The stock market is doing well because of me.” At the end of the day, none of that matters for Trump. He cares about winning, no matter what the cost. Unfortunately, he’s running out of options. Taking a hardline stance on China is one of the few moves left.

Sources

[1] https://www.cnbc.com/2018/09/17/trump-puts-new-tariffs-on-china-as-trade-war-escalates.html

[2] https://www.bloomberg.com/news/articles/2018-12-13/white-house-said-to-officially-delay-china-tariff-hike-to-march

[3] https://www.politico.com/story/2019/01/15/liu-he-washington-trade-talks-1084246

https://www.cnbc.com/2019/01/17/trump-loses-support-among-core-voters-as-the-shutdown-drags-on-polls.html

[4] https://www.reuters.com/article/us-usa-shutdown-poll/half-of-americans-fault-trump-for-shutdown-despite-his-blaming-democrats-poll-idUSKCN1P92QV

[5] https://www.cnbc.com/2018/09/17/trump-puts-new-tariffs-on-china-as-trade-war-escalates.html


tl;dr Pardons

A few days ago, the Washington Post broke a story that Trump and his legal team were looking into pardons, including Trump’s family members and even himself. According to Article 2, Section 2 of the U.S. Constitution —

The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States; he may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices, and he shall have Power to grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment.”

The constitution is quite clear. The president has the authority to pardon anyone for offenses against the United States (read: federal crimes). But, the question about whether or not he can pardon himself is up for debate. That’s the “except in Cases of Impeachment” part.

Most legal experts, including Justice Department lawyers in 1975, agree that the President cannot pardon himself. According to a Justice Department memorandum written during the Ford administration, “Under the fundamental rule that no one may be a judge in his own case, the President may not pardon himself.” Obviously, this hasn’t been tested. Nor did the framers consider this particular example.

Let’s assume that Trump does pardon everyone around him for any potential crimes. While this may kill Bob Mueller’s investigation into any connections to Russia, it may bolster his case that Trump continues to obstruct justice. Obstruction of justice is anything that impedes a current investigation – something that Trump may have done when he fired Jim Comey. Pardoning family members to prevent Mueller from further looking into them may be a textbook example of obstruction of justice as well.

Even if Mueller has a solid case against Trump, either for obstruction or collusion, it’s hard to indict a sitting president. According to the New York Times, the Justice Department, in 1973, concluded that “structural principles” shield a president from immunity. They said that “the stigma of being indicted” would interfere with the duties of the executive branch and prevent it “from accomplishing its constitutional functions”. Kenneth Starr, the special counsel who investigated Bill Clinton, looked into this much more extensively. His office concluded that presidents can, in fact, be impeached — “…if he cannot be prosecuted for violating criminal laws, he will be above the law.” Recall that one of the main criticisms of the founders was that Kings were effectively above the law with nearly unlimited power. Starr’s office circumvented the “structural principles” objection by pointing to the 25h amendment, which formally established a line of succession for the presidency. The executive branch can continue to function even if the president is indicted; the vice president will takeover.

It’s hard to tell where Mueller and Trump, especially Trump, will go next. Needless to say, this has not happened before. If Trump pardons everyone for “the Russia thing”, whether or not he includes himself, there will certainly be a political, legal, and constitutional firestorm.


Why did the AHCA Fail

On Friday afternoon, minutes before the House of Representatives was set to vote on the AHCA (Obamacare replacement), Speaker Paul Ryan yanked the bill. He didn’t have the votes, and the last minute negotiations between the House leadership, President Trump, and the Freedom Caucus stalled. It turns out that it takes more than 7 years, dozens of repeal votes in the House, multiple national elections, and full control of the White House and Congress to scale back one of the largest improvements to our social safety net since arguably the 1960s.

The bill failed because Paul Ryan never had the votes to begin with. There are 237 Republicans and 195 Democrats in the House. From the onset, it was clear that 0 Democrats would vote for the bill, including those in conservative districts that Trump handily won. After the CBO released their estimates (24 million to lose coverage within 10 years), moderate Republicans began to walk back their support. Don’t even get started on the Senate. The original (and amended versions) of the AHCA were non-starters. The bill was rushed through committee before the CBO analysis (nonpartisan economic scorekeeper) even came out, and the original vote was set for Thursday, March 23rd.

Despite rolling back the mandate, cutting taxes for those making significantly more than even the San Francisco poverty line, Ryan lacked the support of the House Freedom Caucus (HFC), the eternal nemesis of the GOP leadership. The House Freedom Caucus is comprised of 25-33 GOP lawmakers from some of the most conservative districts in the country. They contended that the replacement bill did not go far enough in rolling back Obamacare, as it provided tax credits to help buy insurance, required insurers to comply with pernicious regulations like not being able to deny people with pre-existing conditions as well as continue providing essential health benefits (doctors visits, pregnancy, prescription drug coverage, etc.). The HFC prefers a three-pronged approach – repeal, replace, and improve. Any effort to replace the ACA must start with a repeal.

Speaker Ryan needed the HFC’s block of votes to pass the AHCA, and was forced to start providing concessions. To start, Ryan and Trump removed the requirement for insurers to provide a baseline of essential health benefits. Conservatives frequently use the talking point that a 65-year-old male should not have to pay for a plan that covers pregnancy or mammograms. Essential health benefits, they claim, keeps the minimum cost of insurance prohibitively high. Without these benefits, insurance companies would be free to create cheaper plans that would have fewer benefits. The thinking goes that cheaper plans draw in younger people to insurance pools, diversify risk, and lower the cost of premiums for the rest of the population. But there’s one problem — insurance companies have to cover those with pre-existing conditions, like addition. Aetna or Humana might find it more profitable to simply not offer any plans that cover addition at all. If they did, only people with addition would buy and that would create a very risky pool. This wasn’t a problem pre-Obamacare because Aetna or Humana could simply refuse those people. Put differently, if insurance companies are allowed to pick and choose which essential health benefits they have to provide (if any at all), they might choose to offer none. Only people that need a particular benefit would pay more for a plan that covers it.

 

Essential health benefits are quite popular, though — moderate Republicans were wary of their ill, pregnant, and aging constituents that might lose coverage or be forced to pay more under the AHCA. The more concessions Ryan and Trump provided to the House Freedom Caucus, the more moderate votes they lost. The HFC, emboldened, continued to extract further concessions but never got everything they were asking for. By Friday afternoon, Ryan had to pull the bill. After 7 years, he still did not have a piece of legislation that satisfied the various factions in the Republican party to pass the chamber he allegedly has control over.

 

The finger-pointing has already begun, with Trump blaming the Freedom Caucus, Paul Ryan, and Reince Priebus. While there is talk of another attempt, it is very unlikely that Republicans have the political willpower to stomach another healthcare related defeat. It’s more likely that they shift their focus to tax reform next. Lowering taxes on wealthy individuals and corporations is an argument that the House Freedom Caucus, moderate Republicans, the Cato Institute, the Koch brothers can all get behind, and Paul Ryan can all get behind.

 

Recommended reading

https://www.nytimes.com/2017/03/26/us/politics/trump-republicans-tax-cuts.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

http://www.politico.com/story/2017/03/trump-freedom-caucus-obamacare-repeal-replace-secret-pact-236507

http://www.politico.com/magazine/story/2017/03/obamacare-vote-paul-ryan-health-care-ahca-replacement-failure-trump-214947

http://www.vox.com/2017/3/13/14912520/cbo-ahca-gop-plan

http://www.vox.com/policy-and-politics/2017/3/22/15022462/republican-health-plan-ryan-trump-urban-institute-distribution-poor-rich

http://www.vox.com/2017/3/23/15031322/the-fight-over-essential-health-benefits-explained