President Trump has sharpened his midterm message to voters, warning that handing Congress to the Democrats will invite a Venezuela-style socialist calamity that will wreck the economy.
But so far, corporate America isn’t buying it.
Even if Democrats defy the odds and take the Senate as well as the House, polls show they wouldn’t have enough members to drive sharp policy changes. That means that for all the recent Democratic hand-wringing over the deficit, the GOP’s corporate tax cut is likely safe, as is the president’s ability to impose import tariffs.
Of course, financial powerhouses know better than to publicly pick sides anyway.
“Whatever the outcome, there will be a lot of new faces which we’re looking forward to working with, but it’s unlikely you’d see the mid-terms having a significant effect on the economy,” said Marianne Lake, chief financial officer of JPMorgan Chase. “When we think about the company, we run the company irrespective of political outcomes.”
The largest U.S. lender, JPMorgan has benefited from the broad economic boom fueled by Trump’s policies. Nationwide unemployment reached an almost 50-year low of 3.7 percent in September, and the three major stock indexes all broke records this year.
Plus, there’s an upside to congressional deadlock if the House and Senate split: it would constrain Congress’ ability to interfere in the economy.
Yet there would be costs, albeit less visible.
The White House’s deregulation efforts — canceling or delaying more than 1,500 actions planned under former President Barack Obama as of early this year — garnered little scrutiny, and even less resistance, from congressional Republicans. That would likely change.
With a majority in the House alone, Democrats would gain subpoena power and start reviews of “anything Trump-related,” said Chris Krueger, an analyst with Cowen Washington Research Group, which has analyzed federal policy for the past four decades.
The House Financial Services Committee might adopt a “greater investigative focus,” suggested Saul Martinez of Swiss lender UBS.
Democratic lawmakers would also be able to wield indirect influence on regulations that have yet to be written governing mid-size banks, those with $100 billion to $250 billion in assets that gained a greater degree of freedom from oversight in a modification to the Dodd-Frank finance reform law championed by Senate Banking Committee Chairman Mike Crapo earlier this year.
And if Democrats gain any leverage in the Senate, confirmation for Trump’s appointment of Kathy Kraninger to head the Consumer Financial Protection Bureau may prove even more difficult; UBS already predicts it will be a close vote. Kraninger worked under Mick Mulvaney, acting head of the CFPB, at the White House Office of Management and Budget.
A former South Carolina congressman, Mulvaney irked Democrats by trying to eliminate the CFPB, calling it a “sad, sick joke.” Kraninger was criticized during her confirmation hearing by Democrats for a lack of experience in either finance or consumer protection, and the committee vote to send her nomination to the full Senate was along party lines.
Still, most of Trump’s regulators are already in place and able to cut red tape without congressional intervention, on everything from the annual stress tests that determine whether banks can buy back stock and pay dividends to the Volcker Rule’s limits on proprietary trading, noted Jaret Seiberg of Cowen Washington.
If Democrats focus on investigations of Trump’s businesses, including a New York Times report that called the legality of the company’s past tax filings into question, that might stall momentum in Congress and preoccupy the White House, but GOP regulators would still be free to execute their own agendas. The legislative standstill might be a net benefit to lenders, since bills were “more likely to be negative than positive” for them, Seiberg explained.
“Whether you have a majority in the House for Democrats or not, I’m not sure it really matters at this point,” Kenneth Leon, an analyst with CFRA Research, told the Washington Examiner.
Gridlock would be less helpful for retailers and manufacturers, whose profits are being pinched by Trump’s escalating trade war, a concern the U.S. Chamber of Commerce has noted in its midterm election ads. A TV spot supporting Rep. Bruce Poliquin, a Maine Republican, highlighted his opposition to tariffs that “are threatening entire industries” in the state.
So far this year, Trump has imposed duties on steel and aluminum imports as well as $250 billion in Chinese shipments and threatened levies on cars and car parts, moves that have spurred warnings from economists, corporate executives and even Republican lawmakers like Poliquin that the policies risk erasing some of the benefits of last year’s tax cuts.
Retailers and manufacturers have already begun raising prices to cover higher supply costs, and chains from Memphis, Tenn.-based AutoZone to Atlanta-based building-supply chain Home Depot cautioned investors that they were watching U.S. trade policy closely.
“It is hard to envision the trade narrative improving after the midterms,” said Krueger, the Cowen analyst. “Either the blue wave rolls, and the House — and maybe Senate — go to the Democrats, or the red wave holds and Trump is empowered.”
Either way, JPMorgan Chase CEO Jamie Dimon believes the U.S. can withstand the short-term pain, and that the country will eventually strike a trade deal with China.
“The direct effect of the tariffs is not dramatic,” he noted. “It will be on some companies and certain products,” he said, but the $22 trillion U.S. economy would be largely unfazed.
While corporate leaders didn’t support Trump’s tariff tactics, “the president may well be right about how it’s working out,” said Dimon, who also chairs the Business Roundtable, an organization representing the 200 largest U.S. companies.
One industry that has largely escaped the impact of the tariffs is social media, dominated by companies including Facebook, Twitter and Google-parent Alphabet. Those firms have challenges of their own, however, after a series of data breaches prompted Congressional scrutiny from both parties of how the firms gather, use and protect consumer data.
All three grappled with questions in the wake of President Trump’s 2016 election victory about how their platforms were used by Russian operatives to influence voters. The issue grew even thornier when Facebook disclosed earlier this year that Cambridge Analytica, a consultant on Trump’s campaign, improperly gained access to data on 87 million of its users.
That came on the heels of credit bureau Equifax’s disclosure a year ago that hackers had stolen personal identification data on about 145 million people, a breach it didn’t disclose until months after the fact.
This fall, another 50 million Facebook accounts were violated, and Google acknowledged a security gap in its Google+ networking service along with its practice of allowing third-party developers access to Gmail accounts, as long as account holders consent.
Against that backdrop, John Thune, a South Dakota Republican who chairs the Senate Commerce Committee, believes there’s bipartisan support for a federal law governing consumer data privacy, an issue addressed on a piecemeal basis by past measures including the Children’s Online Privacy Protection Act, and the Health Insurance Portability and Accountability Act.
“A decade from now, we may look back and view this past year as a watershed with respect to the issue of consumer data privacy,” he said at a Sept. 26 hearing on the matter. “The question is no longer whether we need a federal law to protect consumers’ privacy. The question is what shape that law should take.”
Whether a Congress made up of a Republican Senate and a Democratic House can agree on such legislation is another matter, Justin Antonipillai, the founder of data-protection firm WireWheel and an acting undersecretary for economic affairs in former President Barack Obama’s Commerce Department, told the Washington Examiner.
The odds of passing such a bill are complicated even further by the atypical alliances the issue creates.
“When I was leading a lot of the efforts by the Obama administration around domestic privacy legislation, one of the things I saw was that there are definitely strong alignments between some of the civil liberties groups and the Democratic side, and some of the corporate groups and the Republican side,” Antonipillai said.
The catch was that they didn’t “match up in the ways that you see on other big pieces of legislation,” he said. Some Democrats come from districts dominated by the tech industry and they’re worried about stifling innovation, while many Republicans have libertarian leanings “and they’re much more civil liberties-focused when it comes to privacy.”
When the two parties are at loggerheads, particularly when control of Congress is split, it’s often a funding deadline that spurs a compromise. Nothing like that applies to data privacy.
“So if the House flips and it’s Democratic, it will be even harder than before to get consensus around a national piece of privacy legislation,” Antonipillai said.
For some companies, particularly those that make money on the campaign season and the election itself, the impact will become visible even before the victors take office.
As JPMorgan’s Lake noted, stock and bond markets may experience some volatility — which typically benefits Wall Street firms that generate fees when investors adjust their portfolios to avoid losses or take advantage of new opportunities.
On the Wednesday after Trump’s 2016 victory, for instance, the volume of currency trades on JPMorgan’s Asia desk was about six times the normal volume, according to a person familiar with the matter.
That was similar to the volume just a few months earlier when British voters defied pollsters and opted to pull out of the European Union. Trades in gold — which investors often view as a safe haven during times of political upheaval — reached three times their normal level, that person said.
In the aftermath of the 2016 campaign, which highlighted the use of phony news articles to sway voters and prompted claims and counter-claims of “fake news,” tech entrepreneur Richard Zack saw another opportunity.
The CEO of Our.News, an online platform that helps users assess the validity of media items, teamed with the Washington, D.C.-based Newseum to create Newstrition, a browser extension that lets users fact-check a story’s sources, rate it and view background information about its publisher — though without rating it “true” or “false.”
Web users can download it on their own, but it’s also available for purchase by news organizations that want to offer readers a way to assess their reliability, said Zack, who conceived of the idea after inadvertently sharing a fake news article himself two years ago.
“I felt embarrassed,” he said, “so I started looking for ways to do something about it.” He and the Newseum are releasing the tool now so that readers can better inform themselves during the mid-term campaign, he added.
