Is this the end for the “Trump trade”? Or just the start?
The US president has just stuck his party with a “take it or leave it” ultimatum.
Either they vote through his new healthcare plan later today, or they’ll be stuck with “Obamacare” for good.
Which way will they vote? And how much does it matter anyway?
What’s this healthcare business all about anyway?
Before we get into the meat of this story, a bit of background.
One of the things that Donald Trump and the Republicans promised during the election campaign was to get rid of Obamacare (President Barack Obama’s healthcare reforms) and replace it with something else.
Now, I’m not an expert on the US healthcare system (I’m not sure anyone is), so I’m not even going to touch on the rights and wrongs of the system. The point is, Obamacare has become a bit of a touchstone topic, and one very dear to the hearts of the core Republican vote, and Trump wanted to repeal it and replace it with the American Health Care Act (AHCA).
That’s where the trouble begins. As we all know, it’s incredibly easy to stand on the outside and criticise a complex system. It’s also incredibly difficult to come up with a replacement solution that keeps everyone happy.
The problem here is that too many people in Trump’s own party don’t really like the AHCA. For some Republicans, it doesn’t go far enough. It doesn’t eradicate every trace of Obamacare. Not only that, but it’s also expensive (there are a lot of “deficit hawks” in the Republican ranks). For others, it goes too far – leaving too many Americans – some of them Republican voters – without health insurance.
Trump needs at least 215 Republicans to vote for the bill (according to the BBC). If just 22 of them join the Democrats in voting against it, it will fail. And apparently, at least 28 of them don’t like it. So there’s a good chance it could fail.
As a result, the vote – which was meant to be carried out yesterday – was delayed. But Trump has now apparently turned around and told them: “Vote for it, or we stick with Obamacare and move on to the next thing.”
A key plank in the art of negotiation is, of course, that you have to be prepared to walk away. Presumably Trump just feels that he can blame the failure of any reform on the Republican holdouts. And to be honest, I struggle to see that he’s wrong in that.
The people in the US who would have voted for Hillary Clinton don’t like him anyway, and they would be pleased to see Obamacare stay.
On the other hand, the Americans who did vote for him seem to be very attached to him regardless of what he does, so they’ll more than likely agree to blame the failure of the repeal on the libertarian and moderate holdouts.
Time to say goodbye to the Trump trade?
It’s interesting stuff. But why does it matter to investors? It’s not because of the reforms themselves. There are two factors here.
One is about Trump and his leadership. So far the Trump rally has been based on hope. Hope that he’s a guy who can get things done. The guy who wrote The Art of the Deal. A guy with proper real-life business experience.
Now, I happen to think that attempting to force this through is probably the right thing for Trump to do at this point. If he wins, it shows he can “get things done”. If he loses, he gets to blame it on someone else.
But that’s an excuse he can only use so many times. If it becomes apparent that he can’t get things done, then the risk is that all you’re left with is a brash, vindictive blowhard who can’t turn all that attitude into effective action. In short, the risk is that the market goes from focusing on the “hope” side of the Trump trade, to the “fear” side.
The other issue – and perhaps a bigger one in some ways – is what it means for the rest of the legislation. If Trump and the Republicans get caught up in a morass over the healthcare programme, then that delays the rest of their plans – in particular, these lovely tax cuts that the market is salivating over.
So, what if they can’t reach an agreement? How much of a problem is it? Andrew Hunter at Capital Economics points out that “there is no procedural reason why the failure of the bill would threaten future legislation”.
And if the Republicans can’t decide to agree on healthcare reform (which is, after all, an incredibly complicated issue), then they could still switch focus to tax cuts. “They just don’t want to”, notes Hunter.
So what’s the likely market impact? If Trump manages to hustle this through – and it’s possible – then his reputation gets a boost, the markets can start to fantasise about tax cuts again.
If he fails to get it through, but manages to move the focus on to the next item on the agenda – and makes sure that it’s tax cuts – then it’s probably fine anyway.
The main risk is probably that the healthcare bill both fails, and then the Trump reform programme gets bogged down in infighting and increasing hostility to any form of higher government spending. It’s hard to get a reflation trade going if no one is happy to give the green light to all that government “stimulus” after all.
We’ll soon find out which way it’s going. Let’s see where we stand on Monday.