Will Trump be Impeached?

Other than himself and his inability for self control, good judgement, or sound policy thinking, Trump's worst enemy is reality. In his Presidential address, the new President mentions a few things that are true and positive: the explicit recognition that the middle class is suffering and stagnating; the USA needs major infrastructure upgrading; teaching and school need to be a priority; job creation and production in the USA need to be made "attractive" for companies, etc. This is fine. However, he also implicitly suggests that the "solutions" to many problems will be found in "protection" with a military upgrade and a boosted law enforcement, along with "eradicating extremist Islam from the face of the earth." Excuse me, but: LOL! His policy agenda also suggests a general detaxation of the upper incomes and corporations. Let's explore the "collision course with reality" that this presidency is at risk of embarking on as of right now and how this can end with impeachment.

Politics
The first "clear and present danger" for Trump is that his own country now disavows him. Polls show that he does not have even close to majority favour and people seem to display buyers remorse. Do you really think that all those Washington political and business sharks in Congress and the Senate and in other countries do not see this? His own party and obviously the opposition are probably already seeking to distance themselves from the rogue candidate and preparing to benefit from his downfall if and when it comes. Democrats stand to benefit most from an eventual failure.

If Trump was a highly astute, subtle and strategic politician, he could perhaps see this happening and play his cards to beat the odds and bring enough support to push his agenda. Poutine, Bill Clinton and Hillary Clinton or Angela Merkel are of this type or political players, but he is not. Unless he has a VERY smart political counselor to help him make the right moves at the right times and say the right things at the right times and in the right way, he is a sitting duck in this ocean of highly tuned and strategic enemies from his own party and the opposition. He is about to discover that politics is a deadly game. In fact, EVEN if he has a super smart counselor, he is likely to not listen to his coaching advice, because he is too self centered and too explosive to be coached, so he is probably a lost cause. He will see that the White House is NOT like private business where you can essentially do whatever you want and make things happen quickly. This alone tells me that the probability of impeachment is high... but to have a President impeached, you need a trigger, a reason...

Trade
Making production and jobs in the USA more interesting has several items in it. They boil down to:

1. Corporate taxes and corporate productivity that lower unit labor costs.
2. Import "competition" from major trading partners due to cheap offshore labor.
3. Exchange rates.

The USA trades most with Canada, China, Mexico, Japan, Germany. The USA has a trade deficit with these 5 countries as follows:

1. China: -343 billion
2. Germany: -74 billion
3. Japan: -67 billion
4. Mexico: -54 billion
5. Canada: -35 billion

The total US trade balance with the rest of the world is -727 billion. By FAR, the biggest trade deficit is with China, which amounts to almost half of the US trade deficit. This is largely because many US multinationals outsource production to China and import to the USA to sell the final product to consumers. In his inauguration speech, Trump says he will "put American insterests first." Fair enough. That seems to suggest trade barriers. But it will not go down well with China and this could cause mounting geopolitical tensions, especially that Trump has openly said that he wants the USA to become closer to India, which is a hint at a geopolitical positioning in Asia with a strategy of "circling China" with regional partnerships. His "tough talk" about military is worrisome, as this is not necessary and not of any long term usefulness for US jobs or prosperity. On top of this, it is not clear that his own party or the opposition would allow any form of protectionist policies from passing into law, so that means this is a low probability event, and this is probably good, as it would probably change little in the long run  structural aspects, which Trump does not seem to fully grasp.

If Trump wants to avoid trade wars with other countries and/or can't pass protectionist measures due to Congress, he may seek to devalue the USD to get the short run boost of increasing exports from a depreciated currency. But again, he will run into the Fed, which will not conduct an inflationnary policy (which would devalue the currency) just because Trump wants it. So he will be blocked on that side as well, and this is a good thing, as it would be a short term fix for a structural problem AND it would pose the danger of increasing inflation and interest rates, which would cause problems of debt servicing for the government and the private sector down the road.

Decreasing corporate taxes is a good policy, as I explain in my book and in other articles. It makes domestic production more attractive and boosts employment, which helps to decrease unemployment, thus tilting some of the "negociating power" to workers due to scarcity. But this has one important cost: fiscal pressure...

Fiscal pressure
Trump wants to reduce taxes to corporations, reduce taxes to already-low-taxed upper incomes, increase infrastructure spending and increase military spending. Please note that according to the non-partisan Congressional Budget Office, the fiscal outlook for the USA is already strained as things stand right now, so these policies would exacerbate the problems.

​​Do you know what this means? Either the all-Republican Congress and Senate will block spending plans OR will eventually demand major cuts "elsewhere" to compensate for the extra spending. Those cuts will be made to the social safety net, and this will increase the divide between the lower incomes and the top incomes, thus feeding inequality of income and inequality of opportunity, which will eventually have the known effects: more crime (is that even possible for the USA?) and the need to contain that growing domestic tension... but fear not, for Trump has a plan for that: more police forces! This "logic" goes in a direction of a police state and war, because it has no real solution. I explain in more detail why I am worried about this in my book, but anyone can see that this context is one crisis away from becoming serious.

What is best for republicans?
Fear of "outside threat and criminals" favours Republicans, while middle class hurting, unemployment, and wage stagnation tend to favour Democrats. The issue for Obama was that he did not have majority to pass "progressive" policies and to really bring massive change, and he inherited a huge economic slump that took about a decade to clean up, thus breeding frustration and a political "demand" for "change"... and it seems Trump represented more change to many citizens - enough to tip the vote on that specific day. Now Trump will be faced with the inability to have a strong depreciation of the currency (unless he ends up negociating a modern replay of the Plaza Accord) that would boost exports. He will be limited in his plans for infrastructure spending due to fiscal pressure, and he will want some kind of political angle to bring people onboard with him. Red = Republican, Blue = Democrat.

The "war on Extremists"
The inability to fix domestic issues related to wage stagnation and the hollowing out of the labour market on top of the inability to spend massively on infrastructure will bring 1) cuts in the social safety net with all the domestic tension that this could bring, 2) the necessity for some kind of "enemy." Many countries of the world have been trying to "eradicate" islamic extremists, but they all failed, because this problem is not specific to one country or region. Yes, it may "originate" from the Mid East, but what is he going to do? Bomb the entire Mid East? Communism was possible to beat simply by the fact that it generates less prosperity, so it was doomed as a mass-organization-system due to low growth, low innovation, and no freedom. Countries can't function long term under communism, as the system itself fails. This is totally different from islamic extremists, many of which live all over the world.

When Bush came to power 17 years ago, he inherited a significantly more solid fiscal position (surpluses passed on from Bill Clinton) and the start of a housing boom. His 8 years ended with total chaos in the Middle East, the worst economic collapse since the 1930s, and a structurally broken fiscal position. Now Trump inherits the end of a major slump, but 1) a more strained fiscal position and 2) very high income inequality. He will discover the harsh reality of choosing... and the all-Republican political landscape will force choices indeed: lower taxes to the rich, higher military spending, and cuts everywhere else. He will fail to "eradicate extremist Islam from the Earth" because it is rooted deeper than he believes and is significantly more complex to "eradicate" than he thinks, but it will be a useful "enemy" to divert attention to his domestic failure.

China the "currency manipulator"
When a country tries to keep its currency "undervalued", the central bank prints its own money and uses it to flood the currency market with it by purchasing foreign currency, thus adding to international reserves. China did this on a massive scale from 2000 to 2014... but NOT recently... In fact, recently, China has been trying to keep its currency from falling too much, so Trump CAN'T accuse them of artificially keeping their currency UNDERvalued right now - it is the exact opposite: they are intervening in the currency market to keep it at a higher value than it would be: they are BUYING their own currency (removing it from circulation) and SELLING foreign assets. They accumulated foreign reserves up to 4 trillion in 2014 (selling their currency and buying USD) and have LOST about 1 trillion (one thousand billion) since 2014 trying to prop up the value of their currency (buying their currency and selling USD). So he no longer can accuse them of currency manipulation - perhaps someone should update him on what has been happening recently...

Possible triggers
OK. Lets recap. Trump will have have to cut in the social safety net and will be limited on his plans for infrastructure spending. He will face stiff opposition from Democrats AND from his own party because he does not have popular favour. He will fail miserably in his plans to "eradicate extremist Islam from the Earth" (I rarely make predictions this confidently, but this one is for sure) and he won't be allowed to pass protectionist laws and he will not have the Fed pursue inflationist policies to devalue the currency.

This can rapidly bring his Presidency into jeopardy and make him a target of choice for scape goating, which he will also do himself - looking for people or countries to blame. He will NOT have the DEMs to blame, because all institutions will be under Republican control, so he is likely to get embroiled into conflict with his own party... and with other countries. But China and Russia have significantly better and smarter politicians than Trump... Do you see the potential for a high-tension context?

What could cause an impeachment? Any pressure point that builds up to a fiasco or a very possible action of his own, since he is notorious for lack of self control and judgement. These triggers could come from many angles: growing geopolitical tensions between the USA and China or Russia, issues over Taiwan, Middle East tensions, further weakening of the Eurozone or the EU from political developments or fiscal pressure, massive bank failures and their domino effects via the direct financial channel and the indirect effect of market mood, tension between Japan and North Korea, a real nuclear threat coming from rogue states such as North Korea or Iran, popular uprisings in some countries (or the USA) stuck with unemployment, wage stagnation, and deteriorating lives for the majority.

I am willing to give him a chance to prove me wrong, and that is why I remain nuanced and I say that he MIGHT end up surprizing everyone with prosperity, fiscal balance, peace, and domestic stability, but lets just say I don't see the odds of a positive ending as very high. For all the reasons mentioned in this article, and even more so due to the combination of all these reasons, I see a high probability of a political crisis under the Trump Presidency, along with a very real possibility of impeachment. Read my book for more details. Thanks for reading. Like and share!

pbedard@yourpersonaleconomist.com