After the Republicans lost their majority in the House of Representatives in November, we believed a period of consensus-seeking between the two party alliances to be the most likely scenario. This had been the most common political route out of the impasse in the case of split majorities in the past few decades. In this case, this was not what happened. Instead Trump maintained an icy resistance.
Some federal authorities were forced to shut down for 34 days, as the US President insisted on being given USD 5.7bn to build a wall along the border to Mexico. Not only does the House of Representatives, which is meanwhile dominated by the Democrats, refuses to fund the wall. Numerous Republicans reject it too.
It took until the end of last week for the President to capitulate and approve the stop-gap spending bill presented by Congress. Key reasons for this no doubt include the financial hardship experienced by some federal employees who were not paid during the shutdown and growing risks to security. Even so, the politicians have not yet come any closer to resolving the original conflict. A solution that could not be found in more than five weeks should now be reached by mid-February. We believe this nail-biting period will continue, culminating at worst in another shutdown of the federal government. The declaration of a state of emergency threatened by Trump in order to get his funds to build the wall not only represents a very questionable but also a very disturbing scenario.
Even if a compromise can be found between the Democrats and Republicans in the next three weeks, and is signed by Trump, we expect this to have dampening effects on the US economy. Politics has clearly switched already into election campaign mode, not only as regards the presidential office but also as far as the deputies of the two Congress chambers are concerned.
With an extremely rigid stance now being taken on the domestic policy front, we can expect minimal concessions at best in the future, if only to deny the opposition even a modicum of success. The scrambling from deadline to deadline will probably define the political agenda from now until November 2020. Congress will most likely have to decide already in March on raising the debt ceiling again. Failure for this to happen before the deadline threatens the US Treasury with insolvency. In such an uncertain environment, consumers and businesses will act more cautiously. Politics have become a burden for the US economy.