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Election 2020 Blog
T. Rowe Price’s Monthly US Presidential Election Blog

February 2020

  • Read Time: 4 min

Since the beginning of his 2016 presidential campaign, President Trump has vowed to abandon trade agreements he believes hurt the US economy. By replacing the North American Free Trade Agreement (NAFTA) with the US Mexico Canada Agreement (USMCA), the president can now state that he has fulfilled his commitment to eliminate, in his words, “the worst trade deal of
all time”— another step in his “Promises Made, Promises Kept” campaign.

But the new agreement—while perhaps having only a limited economic impact— offers talking points across the US political spectrum.

In Trade, Much Like Politics, Timing Is Everything

Given the proximity of 2020 elections, US politicians from both parties felt pressure to tout USMCA as an opportunity to help their constituents.

The president, beyond the headline of fulfilling a key campaign promise, can say he’s cut a better deal for American companies, agriculture and workers. His chief trade negotiator, Robert Lighthizer, claims that bipartisan support for the USMCA shows “you can have a permanent trade policy if you get the balance right.”

Democrats were especially eager to get on board with the agreement. In 2018, they took control of the House by winning some swing districts that are suburban and more politically moderate. Passing the USMCA allows the party to demonstrate that it engaged in bipartisan negotiations and action during a legislative session defined by impeachment.

By touting that they achieved more stringent labor provisions within the USMCA, Democrats can also argue that they pushed through changes that will improve economic prospects for working Americans. Notably, the AFL CIO, the nation’s largest union federation, reluctantly signed off on the pact.

As of mid January, the USMCA had been approved by both houses of the US Congress and by the Mexican government. Canada’s passage of the accord will be required for full ratification.

Pact Could Boost Confidence

While the USMCA makes modest changes to NAFTA, we believe it could be a significant contribution toward greater stability in North American trade by giving US businesses more confidence to invest – even if that benefit comes from a reversal of uncertainty created by President Trump’s initial threat to withdraw from NAFTA.

Katie Deal T.Rowe Price

Katie Deal
Washington Analyst, US Equity Division

  • Read Time: 4 min
Equity markets may be underestimating the potential impact of the 2020 presidential race on tax rates, regulation, and companies in the health care, energy, and financial services sectors. What is fascinating is the fact that the market is not more concerned about the US election. We think it has the potential to be very disruptive for many sectors.

Part of the political backdrop to the 2020 election is the debate over the rise in income inequality that has accompanied the free market reforms of the past four decades. Although these structural changes have boosted growth and lowered inflation, the benefits have not always translated into rising wages and living standards.

While economic anxiety has helped fuel populism, the political appeal of candidates promoting tighter regulation and income and wealth redistribution poses the more immediate risk to markets, in our view.

The odds are about even that such a candidate will win the Democratic nomination. If elected, a Democratic president would probably find it difficult to push a left‑leaning legislative agenda through the U.S. Senate. But potential regulatory changes by such an administration—like stricter limits on oil and gas fracking—are not being priced into the market at all. As we begin 2020, this gives us reason to be a little bit more cautious.

Meanwhile, the announcement of President Trump’s impeachment in December 2019 – just the third serving US President to face such a charge – adds further “noise” to the early year outlook. While the impeachment trial is a black mark against his presidency, it is unlikely to lead to Mr Trump’s removal from office. A simple majority vote in the House of Representatives was enough to pass impeachment, however two thirds of the Senate will need to vote to remove Mr Trump for this to happen. Given the Republican Party has control of the Senate, some 20 Senators would need to vote against Party lines and in favor of Mr Trump’s removal.

Katie Deal T.Rowe Price

Katie Deal
Investment Analyst

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