Big Decisions for the US President in 2018

When he took office last year, United States President Donald Trump vowed to dramatically alter the direction of the economic and foreign policies of the world’s most powerful country.  His call for an “America First” approach to economic and foreign policy promised to shake-up the pillars of international trade, investment and security that had been underwritten by the United States for the past 75 years.  In some areas, he was able to make a clean break with the past and enact policies consistent with his “America First” stance.  These moves included the withdrawal of the United States from the Trans-Pacific Partnership (TPP) free trade deal and the Paris Agreement on climate change.  However, more often than not, he was thwarted in his efforts to enact a more internally-focused agenda, sometimes by the US judicial system, sometimes by his own party, and sometimes by his own administration.  Now, as 2017 comes to an end, President Trump and his administration face the daunting task of reviving a presidency that has struggled to enact most of its promised reforms, while dealing with a multitude of foreign and domestic challenges that will demand much attention in 2018.

A number of important political and economic factors will influence the decision-making by the US president and his administration in 2018.  On the political front, President Trump is facing a number of challenges that he must overcome if he is to have more success in bringing his promised reforms to fruition.  First, President Trump’s approval ratings are hovering around an average of just 38%, one of the lowest approval ratings of a US president in their first year in office in history.  This matters because in November 2018, mid-term elections will take place in the US and Republicans could face major losses if President Trump’s low approval rating persists, and, at the same time, drags down the support of Republicans across the country.  Furthermore, the Republican Party is finding itself increasingly divided over a number of key issues and these divisions could widen as these mid-term elections approach.  Meanwhile, President Trump and members of his administration continue to face the prospects of more revelations as part of the Mueller Inquiry into ties between members of the Trump Administration and the Russian government.  

While these political challenges are sure to prove troubling for the Trump Administration in 2018, there are some economic issues that could pose a challenge to the US government next year as well.  So far, most of the economic news from the United States has been positive, as the US has recorded GDP growth of at least 3% on an annualized basis during each of the last two quarters.  In addition, economic growth is forecast to remain relatively strong over the final months of this year and into early 2018.  However, there are a number of threats that could slow economic growth in the US later next year.  For one, business and investor confidence will fall if the Trump Administration and the Congress are unable to reach a deal on tax reform, while concerns over the longer-term stability of the US economy will grow if these tax reforms jeopardize the financial health of the US government.  At the same time, while the US has withdrawn from the TPP and threatens to end NAFTA, the world’s other leading economies are quickly signing ambitious trade and investment deals, leaving US exporters at an increasing disadvantage in many of their most important markets.  Meanwhile, the potential for a stock market correction is rising, and could occur sometime in 2018, a development that would have a major impact on growth in the US and around the world later next year.

In 2018, the Trump Administration will have to make a number of difficult decisions that will determine whether or not it can regain some of the support that it has lost since taking office.  These include:

• Who to back in next year’s mid-term elections: President Trump has already suffered significant setbacks in special elections this year, but 2018’s mid-term elections will have a much greater impact on the remainder of his first term in office.
• Work with Republicans or appease Democrats: President Trump’s relationship with the Republican Party, particularly Congressional Republicans, will be tested as next year’s mid-term elections approach, particularly if Republican candidates distance themselves from the president.
• Tax reforms: After failing to produce a comprehensive tax reform plan as quickly as promised, the Trump Administration and Congressional Republicans will hope to have a plan agreed upon and approved by early next year.  Early reviews of these plans have been mixed, at best.
• NAFTA: While negotiations with Canada and Mexico on reforming NAFTA are ongoing, there is a strong feeling that President Trump will withdraw the United States from NAFTA anyways.  As we’ve outlined before, such a move would likely increase the US’ trade deficit with Mexico.
• North Korea: North Korea is likely to carry out additional nuclear and missile tests in 2018, including a potential atmospheric test of a nuclear weapon.  The Trump Administration will likely pressure China to do more to stem North Korea’s testing activities, but this is unlikely to deter Pyongyang.
• Saudi Arabia and Iran: The potential for a full-scale conflict between Saudi Arabia and Iran is likely to increase in 2018, and so far, President Trump has thrown his full support behind Saudi Arabia.  A conflict between these two regional powers could drag the United States into yet another conflict.

Whether or not one supports or opposes the policies of the current US president, there is no way around the fact that his first year in office has been tumultuous at best.  Unfortunately, there will be no respite for the Trump Administration as 2018 is likely to be a decisive year as it faces many critical decisions that will define the Trump presidency.  For President Trump, it comes down to a difficult decision between whether or not to attempt to rebuild the support he has lost since taking office, or whether to stick with the ideals that he has championed since he began his quest for the presidency.  As the US president is discovering, it is a lot easier for a populist (on either the political right or left) to be in the opposition as opposed to being in power.  Of course, President Trump was the ultimate protest candidate, winning an election that is usually won by centrist compromise candidates who must endure the longest and most expensive election campaign in the world.  Now, he faces the challenge of building a more cohesive and inclusive government after railing against the very forces that he must now work with.  If he fails, 2018 could prove to be an even more difficult year for his presidency.  In the meantime, the world will watch closely to see which direction its most powerful actor moves in the coming year.