Trade, interest rates top finance fights for 2020

2020 is shaping up to be a crucial year on the economic and financial front.

President TrumpDonald John TrumpUS launches airstrikes targeting Iran-backed militia in Iraq, Syria Trade, interest rates top finance fights for 2020 Five health care fights to watch in 2020 MORE is eager to protect a solid stretch of economic growth and clinch key victories in his trade fights with the election approaching. Democrats, meanwhile, are striving to expose the shortcomings of the Trump economy while battling back against his deregulatory agenda. Policymakers and the financial industry are bracing for a bruising campaign and how it may affect the economy.

Here are five crucial fights that could define economic and financial policy in 2020.

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Trump’s trade wars

Trump concluded 2019 with two significant victories for his trade agenda: the Democratic-led House’s approval of his new North American trade pact, and the outline of a preliminary trade deal with China.

But the president’s trade war with China is far from over, and another fight with the European Union may kick into high gear in 2020.

U.S. and Chinese officials announced last week that they have reached preliminary trade deal that will be released following a typical legal review. While Trump and top White House officials have touted the agreement as a major breakthrough, previous agreements with China have fallen apart throughout the last year. 

The preliminary trade deal would also leave in place U.S tariffs on billions of dollars in Chinese goods and retaliatory tariffs on some American agricultural exports, raising the risks of further economic harm.

The trade war between the world’s largest economies is one of several forces driving a global economic slowdown. But Trump’s simmering trade battle with the European Union might also hinder growth abroad and harm U.S. firms dependent on transatlantic trade.

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Trump imposed 25-percent tariffs in October on an array of popular and iconic European food products, such as wine, cheese, olives, Irish and Scotch whiskies, pork and cookies. The EU has threatened to retaliate with its own tariffs on U.S. food products, which would boost pressure on the ailing agricultural sector.

 

The fight between Trump and the Fed

Trump has shattered more than two decades of precedent with his campaign to bend the Federal Reserve to his will. 

The president has sought to bully the independent central bank into slashing interest rates to near-zero or negative levels to juice the economy and weaken the value of the dollar. Doing so could spur an economic surge ahead of the 2020 election and give Trump added leverage in his trade war with China.

The Fed has resisted Trump’s demands so far. While the bank cut interest rates three times in 2019, borrowing costs still remain several ticks above Trump’s preferred level. Fed Chairman Jerome Powell has ruled out cutting rates to the negative levels seen in countries teetering on the brink of recession, and the bank is expected to hold steady on rates for the foreseeable future.

But as Trump nears what is expected to be a close election, the president may ramp up his pressure on the Fed to stimulate the economy regardless of its effect on inflation or financial stability.

  

The fight over Trump’s financial records

The Supreme Court is set to issue a groundbreaking ruling in three cases involving congressional and prosecutorial requests for Trump’s financial records that could shape the way Congress can oversee the executive branch.

Two cases involve financial records subpoenas from Democratic lawmakers for a broad range of financial documents related to President Trump and his businesses. One case centers on subpoenas sent to Trump’s accounting firm, Mazars USA, while another involves requests sent to Deutsche Bank and Capital One.

A third case involves a subpoena from Manhattan prosecutors against Mazars USA for Trump’s personal and corporate financial records, including tax returns, from 2011 to 2018.

The court will hear arguments in the case in March and will issue a ruling before the end of June. If the high court upholds the subpoenas, the decision could give lawmakers and prosecutors a trove of Trump’s personal financial information just months before the 2020 election.

 

A legal challenge to the CFPB

The Supreme Court is also set to rule on another separation of powers case next year, but one with far greater implications for the financial sector. In Selia Law vs. the Consumer Financial Protection Bureau (CFPB), the court must decide if the powerful financial regulator’s structure impedes on the president’s authority and how far the justices can go to fix it.

The CFPB is led by a sole director appointed by the president, confirmed by the Senate, and only fireable “for cause,” which is generally considered to be misconduct or severe incompetence.

Critics of the CFPB, including the Trump administration and current director Kathy Kraninger, argue that the bureau’s structure impedes on the president’s authority. They claim that because the CFPB director is so powerful and the president can only fire her for cause, the bureau’s structure limits constitutional executive authority.

The bureau’s defenders insist that Congress did not overstep its authority and that the CFPB’s structure mirrors other similar agencies. 

If the Supreme Court sides with the Trump administration, it could do something as minor as asking Congress to sort out the conflict, or go as far as shutting down the CFPB entirely. But a likely middle ground could be simply declaring that the president may fire the CFPB director at will, not just for cause.

 

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Another fight over spending

Lawmakers struggled to reach a deal to fund the government until last week, shortly before the late-December deadline to avoid a shutdown. The 2020 election is set to scramble that process by raising the political temperature and shortening the congressional calendar.

Congress spends most of the first two months before the election on recess under federal law, so lawmakers must decide whether they can strike a funding deal before the end of the fiscal year on Sept. 30, or use a stopgap to push the deadline until after the election.

And while Congress squabbles, steady increases in domestic and defense spending are set to push the deficit to $1 trillion for the first time since 2012.

 

Niv Elis and Naomi Jagoda contributed. 

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