The new year begins as the prior year ended – with the federal government shut down and no compromise in sight. Of course, the government will reopen at some point, likely when the average American gets tired of dealing with the lack of government services: interruptions at airports, inadequate responses to federal agency inquiries, trash piles at national monuments and parks, stories of government workers unable to pay rent or buy food. Sooner or later Washington will no longer be able to ignore the outcry.
Beyond the government shutdown, the theme for 2019 is volatility. The new Democratic-led House is gearing up to hold aggressive “oversight” hearings, aimed at investigating the administration’s policies on such topics as restricting benefits under the Affordable Care Act, Medicaid, and other “safety net” programs; deregulation of the financial services industry; and the technology sector’s data security and protection capabilities. If the Mueller special counsel report raises concerns about presidential actions, expect the House to hold hearings into the president’s conduct as well. Also expect the president to push back forcefully against these inquiries, bringing additional uncertainty to the process.
Trade is another wild card in 2019. Unless Congress steps in, which the Republicans show no inclination to do, the president can set trade policy with little interference. At issue is whether his initiative will lead to more tariffs – upsetting the market’s preference for unfettered global trade – or the execution of favorable trade treaties – in line with the market’s desires.
Talks with China are progressing only haltingly, leaving the markets ricocheting between pessimism and optimism. Also in the mix is whether Congress approves the termination of the NAFTA treaty in favor of the new United States/Mexico/Canada (USMCA) trade deal. In the end, the administration will want some treaty signings to show the effectiveness of its tariff initiative, but it appears that will take a while.