- Talk of President Trump being impeached will most likely continue
- But it is unlikely the President will be forced out of office any time soon
- European business confidence continues to rise
- Fed set to hike in June
- Opec extends current production reduction agreement
Soon after President Trump took office, talk started of him being impeached and forced out of office. We have had plenty of questions about what would then happen. The alleged Russia links of President Trump and his entourage, the President’s alleged coercion and then sacking of FBI director James Comey, and the alleged leaking of classified information by the president to Russian officials have led to a new wave of speculation about impeachment. Bookmakers quote relatively high odds on an impeachment. In my view chances of impeachment are not as high as the bookies are suggesting and chances of Trump forced out of office any time soon are very remote.
How does the process work?
Any US government official can be impeached, but I will focus here on impeaching presidents. Forcing a president out of office can be compared to any criminal legal procedure against an accused. The House of Representatives has the power to impeach a president by a simple majority vote. This part of the process can be compared to an indictment in a normal court case. This does not force the President out of office.
If the House impeaches a president, the Senate will either convict of acquit the him. This can be compared to a trial by Jury. A two-thirds majority is required in the Senate to convict the president.
Grounds for impeachment are: ‘Treason, Bribery or other High Crimes and Misdemeanors’. This is relatively vague. The whole process is both legal and political by nature.
What does history tell us?
Only two presidents have been impeached in the past. Andrew Johnson was impeached in 1868 and Bill Clinton in 1998. Both were acquitted, so no president has ever been forced out of office as the consequence of an impeachment.
Richard Nixon resigned in 1974 before the House could vote on his impeachment. If he had not resigned, probably would have been impeached and convicted by the Senate.
Bill Clinton faced four charges in the House in 1998 and was found guilty of two: perjury and obstruction of justice. At that time, the Republicans held a majority in the House: 226 Republicans, versus 207 Democrats and 2 independents. Clinton was found guilty on two charges by a vote of 221 vs. 212 on one of them and 228 versus 206 on the other. Voting was largely according to party lines, though a handful of Representatives switched side in both directions.
The Senate acquitted Clinton. The Republicans held a 55-45 majority in the Senates. In order to get to a two-thirds majority to convict Clinton and force him out of office 12 Democrats had to vote to convict him. None of them did, while some Republicans voted with the Democrats. The Senate vote on the obstruction of justice charge split 50-50, while on the perjury charge only 45 senators found Clinton guilty.
What lessons do we draw?
I think there are a couple of lessons to be learnt from history.
- It is easy to talk about impeachment, but forcing a president out of office is not easy. In fact, it is unprecedented (not counting Nixon).
- The burden of proof to impeach a president and force him out of office is heavy. You cannot simply impeach a President if you don’t like him. There has to be a strong legal case.
- Even if there is a strong legal case, the process is highly political. In Clinton’s case, voting was almost completely according to party lines. In the Senate, all Democrats stuck with their President.
What does that mean for Trump?
I am not a lawyer and cannot assess whether or not the actual facts constitute sufficient ground for impeachment. But it seems to me that the facts as we know them are by no means a clear-cut case of ‘Treason, Bribery and other High Crimes or Misdemeanors’. So any legal proceedings would likely drag on for a considerable period of time.
As to the political dimension, Clinton was dealing with a Republican majority in the House and in the Senate in 1998 and 1999. Yet, while he was impeached by the House, he was acquitted by the Senate. In terms of numbers, Trump is in a stronger position than Clinton was as Republicans currently have a majority in both chambers of Congress. 238 seats in the House are currently occupied by Republicans, while there are 193 Democrats (and 4 vacancies). In order to impeach the president, at lest 28 Republicans would have to vote against their own president. This is a big hurdle. The Representatives will not only consider the legal evidence, but also the political implications. Dropping your own man does not tend to make you very popular in your own circles.
The numbers will change in 2018. On 6 November next year all seats of the House will be contested at the mid-term elections.
The Republicans also hold a majority in the Senate: 52 versus 46 (and 2 independents). So even if the House were to impeach Trump, it would take at least 19 Republican senators to convict him, assuming all Democrats and the two independents will find him guilty on any charge brought against him. This would also seem to be a very high hurdle.
Numbers will change after the mid-term elections next year when 33 seats out of the 100 will be contested. However, only 8 of those are currently held by Republicans so it does not seem likely that the Democrats will be able to win a significant majority.
Bottom line: Trump will stay
The bottom line is that it looks extremely unlikely that President Trump will be forced out of office, at least any time soon. I must admit, that his behaviour is highly erratic and it is not impossible that new facts come to light that so blatantly constitute ‘Treason, Bribery or other High Crimes and Misdemeanors’ that a sufficient number of Republican members of Congress are willing to drop their own man.
Should impeachment procedures against Trump be started, this is likely to affect Trump’s effectiveness as a president negatively and could lead to significant divisions within the Republican party.
Eurozone business confidence: on a roll
Recent days have seen another round of impressive business-confidence indicators in the eurozone. The Markit PMI for the manufacturing sector rose from an already high 56.7 in April to 57.0 in May. The services-sector equivalent inched lower: 56.2 versus 56.4. While the services sector is much larger than the industrial sector, I put more weight on these indices for manufacturing as the industrial sector is more cyclical than services and usually leads the cycle.
The authoritative German Ifo index also moved higher in May. It printed 114.6, after 113.0 In April. The my reading was the highest since 1991. Back then, the German economy was getting a significant stimulus from the reunification of the country. Both the expectations component as well as the current-conditions subseries rose. This is evidence that the German economy is gaining further momentum and the rest of the eurozone is on the band wagon. French business confidence is on the rise, too. Italy is often seen as a very weak economy. And that is correct. However, that does not stop Italy from benefitting from the global upswing: industrial orders were up 9.2% yoy and industrial sales were up 7.2% yoy, versus 4.6% in February,
US indicators were more mixed in recent days. On the strong side were the Chicago Fed’s national activity index for April, reaching the highest level since 2014, as well as data from the labour market. Some regional business confidence indices, in particular the Richmond Fed version, were soft in May. New and existing homes sales were weak in April, though their trend remains upward. . This is something the Fed will watch closely as the housing market is sensitive to borrowing costs.
US Q1 GDP growth was revised us from 0.7% to 1.2% qoq annualised, largely as private consumption growth was revised from 0.3% to 0.6%. There were other adjustments as well that were all favourable. The exception was inventory building, which was revised lower. Inventories made a negative contribution to growth of 1.07%. That is a significant drag, which was partly offset by a bigger contribution from international trade. Nevertheless, the inventory drag has had a large impact on the overall data, making the growth in the economy weaker than it actually was.
US durable goods orders for April were weak, falling 0.7% mom, but the March data was revised from +0.9% to +2.3%. Capital goods shipments (non-defense, ex air), a proxy for corporate investment, fell 0.1 mom in April, but are still up 1.2% since the beginning of the year.
The 3 May FOMC meeting minutes indicated that the Fed sees the weakness that came through in Q1 GDP data and some other date as transitory. As a result, the Fed appears to be on course for a rate hike in June, as we have expected for a while.
Watching world trade and the China effect
The improvement in global business cycle conditions in the course of last year and into the current year has been partly driven by stronger Chinese import growth. This has not only been evidenced by Chinese data, it has also been reflected in economic data in China’s (closest) trading partners and in world trade data. The CPB collects data on world trade. As this data is an aggregation of national data in many countries, it is not the most timely, it is volatile and prone to significant revisions. Nevertheless, the latest set of numbers is fully consistent with strengthening Chinese imports. The March data shows an increase in the volume of world trade of 1.5% mom after a rise of 0.8% in February.
More recently, Chinese policy measures aimed at slowing the build up of debt have led to a weakening of business confidence. This is now also reflected in data of countries in the region. Taiwan’s export orders were up a healthy 7.4% yoy in April, but that was after 12.3% in the previous month. Japan’s export growth slowed from +12.0% to +7.5% yoy. Taiwan’s industrial production growth fell into negative territory in April: -0.6% yoy, after +3.2%. This is not alarming, but we need to keep an eye on this. On the positive side, Korean consumer confidence strengthened impressively in May.
Opec extends production-cut agreement
Opec has extended their agreement to limit production by 9 months. Oil prices dropped on the news. Our reading of that reaction is that market participants closed long positions they had taken assuming Opec might cut production further. We see the drop in prices as temporary. What is more important for the medium term is that the market is slowly moving to a better balance between supply and demand. We expect that trend to continue and for it to support prices in the second half of the year. Our oil analyst Hans van Cleef has not changed his forecast for year end of USD 60/bbl, though he thinks that downside risks to his forecast are larger than upside risks. How fast US shale oil production can continue to rise is a significant uncertainty.