Prophets

Presidential Powers Pose a Problem for Markets

Despite gridlock in Washington, Trump is moving ahead on his own on deregulation and foreign trade.

Trump's trade policies don't mix well with markets.

Photographer: Drew Angerer/Getty Images

Remember when the teacher in high school civics class taught that the U.S. Congress makes laws and controls the purse while the president merely enforces them and spends the allocated money? That no longer reflects reality.

Federal spending has risen from 16 percent of gross domestic product in the early 1960s to 22 percent today. Regulatory bodies have mushroomed, including six new federal departments and numerous agencies. Every national crisis brings more federal involvement -- all of which has resulted in thousands of rules regardless of their costs or benefits. Recent presidents have taken it upon themselves to act unilaterally in regulating and deregulating countless aspects of the economy and business while issuing executive orders on items that on occasion have been stymied by Congress. 

Despite gridlock in Washington, Trump is moving ahead on his own on deregulation and foreign trade. The former is favorable for investors; the latter is problematic.

The Trump administration recently opened Nafta renegotiations with Mexico and Canada. In line with Trump’s “Buy American” theme, it’s seeking greater flexibility in imposing or reinstating tariffs on Mexican and Canadian imports. Trump is also free to pursue his “America First” trade policies by taking a hard line against China and threatening to impose steep tariffs on Chinese exports.

Trump has also pressed for deregulation, but with little success. It’s not for lack of effort. Examples of deregulation under a Trump administration are legion and growing. Through the middle of the year, the federal government made 1,731 preliminary, proposed or final rules, down 40 percent from the 2011 peak under President Barack Obama and a 17-year low. And many actions taken under Trump are actually reversals of earlier rules made by the Obama administration. Of 66 completed actions at the Environmental Protection Agency, a third were rule withdrawals.

Trump’s Labor Department undid Obama’s expansion of eligibility for overtime pay while financial regulators dropped plans to tighten restrictions on banker pay. The Interior Department indicated it would rescind proposed rules on oil and gas fracking on federal land. The Federal Communications Commission is reversing the Obama-era decision to regulate internet service providers as utilities. The Food and Drug Administration has signaled faster approvals for new drugs.

The fiduciary rule governing retirement-savings accounts is being delayed by 18 months from the Jan. 1, 2018 compliance date to July 1, 2019, so significant revisions may be made. The Treasury Department is proposing the rollback of many restrictions on financial institutions that the Obama administration believed were necessary to curb excessive risk-taking and a repeat of the 2008 financial crisis. Many are part of the 2010 Dodd-Frank financial regulation law.

The Consumer Financial Protection Bureau is still led by an Obama-appointed director, but is shifting toward lenders’ interest than its previous exclusive focus on consumer borrowers. As its rushes to complete a regulation on payday lenders before a Trump appointee takes over, it is scaling back restrictions on them. Of course, the new leadership may simply not enforce whatever restrictions on payday lenders that survive.

The Department of Housing and Urban Development just announced a tightening of rules for reverse mortgages. By requiring bigger upfront fees paid to the Federal Housing Administration that insures the loans and by reducing loans for new borrowers, the government believes the program will be on a sounder footing with less exposure for taxpayers.

In another reversal of Obama-era regulations, the Equal Employment Opportunity Commission will stop the scheduled collection of data from employers on how much they pay workers of different genders, races and ethnic groups. The 2016 proposal was part of Obama's efforts to address pay disparity among different groups of employees. It would have applied to private firms with 100 or more employees and federal contractors with 50 or more.

The Occupational Safety and Health Administration is reducing its reporting of workplace fatalities and is rolling back a regulation that went into effect Jan. 1, at the end of Obama’s presidency, that requires employers to electronically file injury logs to the government.

Many of the regulations instituted by Obama were via executive orders, and Trump is using executive orders to rescind them. Within days of taking office, Trump signed two orders supporting the construction of two controversial oil pipelines -- Keystone XL and Dakota Access -- that Obama had refused to back, due mostly to environmental concerns. 

The Trump administration is also considering reducing the size of some national monuments but not eliminating them. They encompass vast areas of federal land, especially in the western part of the country. Removing acreage would free up land for ranching, hunting and fishing, mining and other commercial use. This, too, can be done without congressional involvement.

Trump ended the Deferred Action for Childhood Arrivals program that has offered a reprieve from deportation to 800,000 people -- “Dreamers” -- brought to the U.S. illegally as children. It was instituted by Obama’s executive order five years ago.

Interestingly, executive orders were originated out of thin air by Franklin D. Roosevelt. Congress did not prohibit them so the custom became established and has grown tremendously, especially in recent years. They are, in effect, presidential legislation and another vivid example of the awesome power of the president of the United States.

Bloomberg Prophets Professionals offering actionable insights on markets, the economy and monetary policy. Contributors may have a stake in the areas they write about.

    To contact the author of this story:
    Gary Shilling at agshilling@bloomberg.net

    To contact the editor responsible for this story:
    Robert Burgess at bburgess@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE
    Comments