Trump won some badly needed support from mainstream Republicans and many Democrats for his strikes against Syria, and we expect polls later this week will give him a bump. But Democrats—in the minority in both houses—are on the offensive. They will seek major concessions for cooperating with him; follow the money—that’s where things will get interesting later this month.
Trump’s Top Legislative Goals Are Bogged Down
Hard-line conservatives in the House will not provide the votes Paul Ryan needs to pass a budget deal, keeping the government open, by April 28. So Ryan and Trump will have no choice—they have to lure Democrats with promises to fund Planned Parenthood, reject money for a wall with Mexico, and abandon the idea of deep spending cuts for domestic programs. (Defense is still headed for a big raise.)
Mitch McConnell said late last week that Democrats will have to be part of a budget deal, raising this issue: where else will the mainstream in both parties strike deals? Infrastructure is still the low-hanging fruit, and Democrats are already making demands for urban spending, higher worker wages, etc. Even on taxes, Democrats are talking about what they want: no big tax cuts for the wealthy, revenue neutrality, etc.
THE NEW TRUMP: What a turnaround—three dozen House Freedom Caucus rebels, who don’t believe in compromise have forced Trump into dealing with Democrats. There are no alternatives—seek Ryan’s ouster? There’s no logical successor. Shake up the White House staff? Maybe, but that will just hasten Trump’s move to the center.
There’s a sobering reality for Trump’s base: the president is willing to get involved in a Mideast civil war; he can’t build a wall; his bark was worse than his bite on trade; he can’t fix Obamacare; the impact of tax reform is a year away; and he needs Democrats to get anything done.
What does this all mean for the markets? This is starting to look like a traditional center-right administration; the Goldman Sachs faction has won, and a pro-business climate is a good thing for the markets. But the sizzle Trump brought to the office—radical change, unabashed populism, massive tax cuts—has faded, as he realizes how daunting it is to deal with Congress and geopolitics. He never, ever knew it would be this difficult...
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