Trump is just a conventional politician who uses over-the-top bluster, NAFTA edition

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.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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