Macro Weekly – Changing my view on Trump

by: Han de Jong

  • It remains difficult to force a US president out of office…
  • …but chances of Trump being impeached have gone up
  • Confidence indices world wide remain firm
  • US jobs report shows modest jobs growth and modest wage pressures
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Until recently, I thought it was unlikely that impeachment procedures would start against US president Trump and I thought it even more unlikely that Trump would be forced out of office. I have changed my mind and will explain why below. The question is how relevant this all is for the economy and for financial markets. That is very hard to say. But let me start by explaining why I have changed my mind on the fate of president Trump.

How the process works

A US president can be impeached by the House of Representatives, according the article 2 of the US constitution, for reasons of ‘bribery, treason, or other high crimes and misdemeanors’. The vote in the House is determined by a simple majority. Once impeached, a president is forced out of office if the Senate, subsequently, finds the president guilty of the charges. The Senate needs a two-thirds majority to do so.

Two presidents have been impeached in US history, Andrew Johnson in 1868 and Bill Clinton in 1998. Both were acquitted by the Senate. President Nixon resigned in August 1974 while an impeachment process against him was ongoing in the House. Formally, Nixon was not impeached or forced out of office.

Four charges were brought against Bill Clinton in the impeachment process in the House in 1998. He was found guilty of two: ‘perjury’ and ‘obstruction of justice’. At the time, the Republicans held a 55-45 majority in the Senate. All 45 Senators backed Clinton and voted ‘not guilty’. As a two-thirds majority of the Senate needs to find a defendant guilty, the unanimous support from Democratic senators was enough to acquit Clinton. In the event, ten Republicans voted ‘not guilty’ on the perjury charge and five Republicans voted ‘not guilty’ on the obstruction of justice charge. Clinton stayed.

Not easy to get rid of president Trump

To force Trump out of office the House first needs to impeach him. In the Clinton case, the voting in the House was largely, but not fully, along party lines. The Republicans currently hold 239 seats in the House, against 193 Democrats (3 vacancies). It would thus require at least 23 Republicans to drop their president, assuming all Democrats stick together. That is unlikely unless the charges are very serious and the evidence strong. All House seats will be contested at the November 2018 mid-term elections. If the elections were to swing the balance in favour of the Democrats, that would significantly increase the chances of impeachment after the elections.

My conclusion from the Clinton experience is that it is really difficult to force a US president out of office, even after impeachment, as the Senate vote requires a two thirds majority and the voting seems highly politically motivated. With the Republicans currently holding a slim majority in the Senate, 51 against 49 (or, more correctly, 47 Democrats and 2 Independents who tend to vote with the Democrats), I think that the charges against the president must be extremely serious and the evidence very compelling in order to get a sufficient number of Republicans to vote against their own president. 33 of the 100 Senate seats will be contested at the November 2018 mid-term elections. This could shake things up a little. However, the Democrats cannot achieve a two-thirds majority as 25 of the 33 seats that will be contested are currently held by Democrats. So the most seats the Democrats can have after the elections is 57. In that situation, at least 10 Republican senators must then vote against their own president.

So why have I changed my mind on Trump?

During the Christmas holidays I read Luke Harding’s ‘Collusion: how Russia helped Trump win the White House’ about the links between president Trump and Russia. Assuming a lot of the content of the book is accurate, it seems to me that a charge of treason and perhaps other very serious charges against Trump are a distinct possibility. Such a charge of treason is so serious that voting along party lines in the House and the Senate becomes a little less likely if the evidence is strong. In May 2017, former FBI director Robert Mueller was appointed Special Counsel investigation of Russian interference in the 2016 United States elections. His investigations will or will not result in allegations and indictments. Mueller has already indicted a number of people involved in the Trump campaign.

In the last couple of days, Michael Wolff’s new book, ‘Fire and Fury: Inside the Trump White House’, has triggered strong reactions. The book is not out yet, but it apparently quotes Steve Bannon (a key advisor to Trump until he was sacked in August) suggesting that at least president Trump’s son and son-in-law could be guilty of treason.

Effects on the economy and markets

It is hard to say what will happen to the economy and to financial markets should formal impeachment proceedings against the president start. In 1998, US GDP growth did not suffer visibly from the impeachment process against Clinton. The stock market wasn’t worried either. In fact, the tech-rally was in full force and the impeachment process seems to have been irrelevant to the market. Interestingly, however, the ISM index weakened significantly in the course of the year but bottomed when Clinton was actually impeached. It continued to rise after Clinton was acquitted.


It is guess work to say what will happen should impeachment proceedings start against Trump. The situation is very different from the Clinton case. The allegations are of a different nature, in my view. In addition, the response of president Trump is unpredictable. And the situation on financial markets is currently different. The stock market is going through an ‘unloved rally’ and many commentators are looking for an excuse to predict a turn in the market or at least a big correction. An impeachment process might provide that.

To be continued…

Strong finish, strong start

The global economy has ended 2017 on a high and nothing is suggesting things will change in a hurry. Confidence indices have generally, though not universally, been strong in recent weeks. The eurozone Markit PMI for manufacturing continued its straight-line rise, reaching 60.6 in December, the highest level on record.

In the US, the Chicago PMI, the Dallas Fed and the national ISM rose in December, but the Richmond Fed business confidence index and the Conference Board’s index of consumer confidence weakened in December. There is always some volatility in such indices and there is no reason to change our upbeat view on the near-term prospects for the US economy.

The US jobs report for December showed an increase of 148,000 jobs, lower than expected while revisions to October and November were also modestly negative. This is not a bad thing. 148,000 is still more than the trend increase in the labour force. Average hourly earnings rose 0.3% mom after a downwardly revised 0.1% in November. The yoy increase in hourly earnings ticked up marginally, from 2.4% to 2.5%, but this is still remarkably low compared to the 2.9% of December 2016. It suggests that inflation pressures remain contained.

Asia is, arguably, the most cyclical part of the global economy and as we have highlighted before, the trajectory of the Chinese economy will play a key role in how the global cycle unfolds in 2018. We are assuming a gradual deceleration of Chinese growth. Any more serious slowdown is a risk. Chinese December business confidence data was encouraging. According to the Chinese central bank’s gauge business confidence in manufacturing weakened a touch (51.6 in December versus 51.8 in November) while confidence in the non-manufacturing sector strengthened: 55.0 versus 54.8. The Caixin measures, which are based on a smaller sample of companies and reflect more the internationally operating part of the economy, showed a material strengthening of confidence in both sectors: 51.5 in December versus 50.8 in November in manufacturing and 53.9 versus 51.9 in non-manufacturing.

PMIs in other Asian economies showed a somewhat mixed picture. The Nikkei PMI for Singapore weakened from 55.4 in November to 52.1 in December. The PMIs in Japan and South Korea also fell: 54.0 in Japan in December, down from 54.2 in November. And 49.9 in Korea in December, versus 51.2 in November. The Taiwanese PMI on the other hand strengthened a touch: 56.6, up from 56.3. This divergence may just be noise, but it may also be indicative of trends in the economy as the Taiwanese economy is even more exposed to the electronics sector than the other Asian economies.

All in all, the global economy had a good 2017, it ended the year on a high and this trend is unlikely to change significantly soon.