U.S. Policy Outlook for 2018: Expect Action on Trade and Government Spending
Although much of 2017 represented a series of fits and starts in Washington, the Trump administration and the Republican-led Congress ultimately – and against long odds – delivered on one of their biggest campaign promises: a relatively sweeping rewrite of the tax code, representing a likely boost to 2018 U.S. real GDP of 0.2%–0.3%.
As we turn to 2018, a key question for investors is will momentum beget momentum with Congress delivering more pro-growth policies, or will Washington revert to its steady state of paralysis? Here is what we see on the horizon for 2018.
While infrastructure was a key theme during the 2016 campaign and has strong support among Democrats on Capitol Hill, as of now, we do not see significant traction being made in 2018.
This prognosis would have been different if the Trump administration had led with infrastructure in early 2017, at which point a bipartisan deal would have been likely. But given events of the past year and the Democrats’ hope for success in the November midterm elections, Democrats – who are critical to getting the needed 60 votes to pass infrastructure in the Senate – have little incentive to compromise. They will likely insist on a very substantial package as a precondition (and one much larger than the $200 billion the administration is rumored to be envisioning), which is likely a non-starter for most congressional Republicans.
We are similarly skeptical we will see anything meaningful passed on welfare reform. While welfare reform can pass using reconciliation (which requires only 50 votes in the Senate, not 60), those votes will likely be hard to find given the difficult politics around welfare and entitlement reform, especially in an election year.