This morning, the Trump Administration called the leaders of Canada and Mexico to tell them that he “agreed not to terminate NAFTA at this time,” showing, yet again, that Donald Trump is much less audacious a President than some expected. The question is why.
About two months ago, I surmised that despite all his hot rhetoric, Trump’s bark was worse than his bite and that we would soon see he was not that unconventional. I said “Trump sets policy direction and policy actually gets made and implemented by his direct reports and their staffs. And that is going to mean much less of a break with existing policy than now feared.”
But there’s another reason Trump will be less audacious than feared: Checks and balances. The system of governance in the US is proving to be extremely effective in thwarting Trump on his most controversial policy actions. First, we saw this with his Muslim travel ban and the courts. Then we saw it with his healthcare plans and Congress. And earlier in the week we saw it with the wall and government shutdown.
Donald Trump thought he was stepping into a position of power similar to what Turkish President Erdogan is getting shortly. Instead, he stepped into a role with significantly less control than he anticipated.
Why this matters. Trump is racing to prove he can be be an effective leader in a position with more constrained power than anticipated. To date, he has relied almost exclusively on executive orders and has been stymied by Congress on legislative achievements. But these executive orders are of limited use in actually effecting change.
As a result, his tax bill is important for his legacy. I believe the specifics Treasury Secretary Mnuchin presented yesterday in introducing the bill were so vague – even less detailed than his campaign tax plans – is because Trump knows he needs to horse trade. He understands that his legacy depends on this bill’s passing and he does not want to commit to so many specifics that it forces politicians in his own party to disavow the bill before the process has started.
CNN is saying the chances of this tax proposal passing though Congress are slim to nil. I disagree. I believe Trump will be very flexible on these issues in order to get the bill through.
One other point matters here, and that’s the Fed. To the degree that Trump is successful in getting his tax bill through Congress despite revenue shortfalls — under the premise that growth will make up for those shortfalls, the Fed will offset this. So a successful Trump tax bill will offer a boost to the economy by cutting taxes. But the Fed’s response will be bearish for Treasuries.
On NAFTA and the understandable angst in Canada about Trump’s bluster and the potential for an all-out trade war, here’s my view on CBC’s On The Money program.