The US mid-term elections: Trump bumped but still pumped

On Tuesday President Trump’s Republicans lost control of the House of Representatives but retained the Senate with an increased majority. Will this make the President nicer? Probably not, writes Victor Hill.

It’s not the economy, stupid!

In case you’ve been on a two-year mediation retreat, the US economy is doing rather well. Unemployment, at 3.7 percent, is at a 40-year low, even amongst black workers; growth this year is hovering at around a pugnacious 3.7 percent too (Japan’s is 1.3 percent); wages are rising and US corporations are repatriating offshore cash further to Mr Trump’s fiscal reforms. Not only is there a widespread feel-good factor but millions of Americans attribute the healthy economy to the President.

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Yet the 2018 US mid-term elections, with their outbursts of inflammatory invective, were not really about the economy at all. They were much more about culture – what sort of society America wants to be. For Mr Trump himself they were a referendum on his controversial 22 months’ presidency which has already changed the way many Americans think about themselves (for the good and the bad). For Mr Trump’s opponents, his strident language and the occurrence of appalling crimes like the Tree of Life synagogue massacre in Pittsburgh are supposedly connected. (Even though Mr Trump is a staunch supporter of Israel and indeed has Jewish grandchildren).

The fact that voter turnout rose to 47.1 percent – the highest since 1970 – tells us that Americans considered these elections more than averagely important. The campaign has the character of a titanic clash from Game of Thrones, not least because the President threw himself into it as if his very survival was at stake. In the event, the votes of 113 million American citizens have made a difference.

Let’s recall that the elections embraced the whole of the 435-seat House of Representatives and 35 seats within the 100-seat Senate. Both chambers were controlled by the Republican in 2016. In addition, there were 36 gubernatorial elections (out of 50 states), three territorial governorships and the majority of state legislatures were up for grabs.

Immigration: the Mexican wave

The dominant issue of the mid-terms was immigration.

With extraordinary timing, a migrant caravan of refugees set out from Guatemala, heading north, in early October. As this ragged medley of down-and-outs crossed into Mexico, America’s media squared up. For the Fox News-watching right, this spectacle exemplified everything that Mr Trump and his supporters fear most about mass immigration through America’s soft underbelly.

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Some commentators have even suggested that it is beyond coincidence that this cavalcade of the dispossessed could have manifested themselves with such exquisite timing. But I fail to see how Mr Trump could have possibly stage managed this exodus. He suggested that George Soros might be funding the caravans – a week after the billionaire financier received a bomb in the post. To be sure, Mr Trump milked the issue shamelessly for every drop of anti-immigrant sentiment, even accusing the Democrats of plotting to allow immigrant murderers to enter America.

The Republican’s campaign even sponsored a TV commercial which featured Luis Bracamontes – the illegal immigrant from Mexico who was deported twice but who managed to sneak back into California only to kill two police officers in 2014. In the video the murderer grins at the camera, saying “I’m going to kill more cops soon”. Mr Trump re-tweeted this video. He also used the words “invasion” and “national emergency” – which were picked up angrily by Mr Obama.

He announced that up to 15,000 US troops could be deployed to the border – that is more than are deployed in Afghanistan. On 02 November he suggested that these troops could open fire on stone-throwers. There are already over 5,000 troops along the 2,000 mile-long US-Mexican border –providing support for the US Immigration and Customs Enforcement (ICE) agency.

To be fair to Fox News et al, there is not in fact one caravan, but many – each of 1,000-4,000 people. On 31 October Mr Trump threatened to halt US foreign aid to Central America if they failed to stop them. He also suggested that there are 25-30 million undocumented migrants in America – a figure well beyond official estimates of around 12 million.

Mr Trump then used the mid-term elections to announce his desire to revoke the 14th Amendment to the US Constitution (1868) whereby all children born on US soil automatically become US citizens. He claimed that this could be done by executive order, but in fact amendments to the US constitution require a lengthy congressional process.

Asked if he was creating a violent atmosphere, Mr Trump told a reporter: “You’re creating violence by your question. The fake news is creating violence.”

Other election issues

The other main issues of the campaign, apart from immigration, were predictable. This was the first set of US elections since the disgrace of Harvey Weinstein and, therefore, the first in which the #MeToo movement was active. The undignified scenes in Congress surrounding the confirmation of Justice Kavanaugh’s appointment only played into a heightened debate about the new feminist orthodoxy (namely that all men are potential predators and that nearly all women have been their silent victims). This conversation will surely continue for some time.

It is of interest that there were some female Republican candidates who tried to distance themselves from their president. Barbara Comstock, the Republican incumbent for Virginia’s 10th Congressional District – one with a high proportion of professional college-educated women – went out of her way to stress her anti-Trump credentials. In the event she was comprehensively defeated by Democratic challenger Jennifer Wexton.

Then there is healthcare. When Americans tell you that healthcare is in crisis, they do not mean – as their British counterparts do – that the healthcare system is not fit for purpose. They mean that their health insurance premiums have become intolerably expensive. They became more expensive because Obamacare (the Patient Protection and Affordable Care Act, 2010) effectively required the middle classes to subsidise the health insurance premiums of the poor. Observing from this side of the pond, I do not see that Democrats can consistently both laud Obamacare and complain about its cost.

Then there is the endless debate around gun control – which is so hard for non-Americans to understand: so I won’t go there.

Renewed sanctions against Iran

There was one hugely important foreign policy initiative during the election campaign.

On 05 November the administration formally reversed the decision of the Obama presidency and re-imposed a comprehensive sanctions regime against the Islamic Republic of Iran. This had been on the cards since Mr Trump tore up the Iran Treaty of 2015 back in May. Under the new sanctions regime the US will grant waivers to eight western countries (including India, Japan, Italy and South Korea) to continue to buy oil from the Iranians temporarily. As I write, it’s not clear whether China will be included in that list – if so it would ramp up the temperature of the existing trade war.

Iran’s President Rouhani described the measures as amounting to economic warfare – and, for once, that is an accurate summation on his part. Mr Trump said that the goal of the sanctions was to deprive the Iranian government of the revenues that it uses “to spread death and destruction around the world”. But it is also part of America’s grand strategy in the Middle East.

Britain, France and Germany issued a joint statement to the effect that they deeply regretted President Trump’s decision. Many Western firms have already fled Iran for fear of being put on a US blacklist. I shall explain soon why this issue could quite literally explode in 2019 – and how it could cause a serious rift between America and her European allies.

The Outcome

On the morning of the poll, CNN had the Democrats on 55 percent and the Republicans on 42 percent. That turned out to be (slightly) too optimistic for the Democrats. Party-based opinion polls should be treated with scepticism in America since many American voters will vote for a Senator of one party and a Representative of another, in accordance with the standing of individual candidates. But the outcome was a fundamental shift of power towards the Democrats who have convincingly taken the House.

In terms of governorships, seven states “flipped” from Republican to Democrat governors. These were: Nevada, New Mexico, Kansas, Wisconsin, Illinois, Michigan and Maine. These states will be of critical importance in the 2020 presidential campaign.

Table (1): Comparison of US elections in 2016 and 2018

American politics is now more diverse than ever. There are a record number of women in the House, of which two Muslim and two Native American congresswomen (of which one a lesbian). Jared Polis (D) of Colorado (cowboy country) is the first openly gay man to be elected governor – and he is also the first Jewish governor of the Centennial State. Andrew Gillum failed by a whisper to become the first black governor of Florida, losing to Republican Ron DeSantis. Stacey Abrams (Democrat, Georgia) failed to become the first black female state governor.

A Nevada brothel-owner and reality TV star who campaigned on a pro-Trump Republican ticket won Nevada’s 36th Assembly District, which includes rural desert communities. It then turned out that he was dead.

Likely consequences

Mr Trump has much more than survived. The Senate, ultimately, is more important that the House. It is the Senate that confirms the appointment of secretaries of state, Supreme Court Judges, ambassadors and so forth. It is ultimately the Senate which can impeach a President given a two thirds majority – and that is not going to happen any time soon. Mr Trump can continue to sleep soundly – for now.

The House of Representatives, however, can make big trouble for a US President. As well as being able to initiate primary legislation, it has the power to subpoena government officials (and documents) and to haul them up before Congress. The media agenda is more influenced by what happens in the House than what passes in the Senate: Senators are generally older and more conservative than members of the House, anyway.

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Mr Trump’s foreign policy agenda – the containment of China by means of the prosecution of a trade war, the isolation of the Islamic Republic of Iran, the hot peace with Russia, the down-grading of NATO – will not be deflected by a Democratic House. His domestic agenda may well be challenged. But arguably, the main domestic measure of his first term – the package of fiscal reforms – has already been delivered. Mr Trump’s focus will now be towards 2020 and his re-election.

Some commentators have suggested that what is most likely to change is the tone of politics. Many Democrats talk about uniting America rather than dividing it – as the President supposedly does. But the rise and rise of identity politics is itself divisive: women against men; blacks against whites; transsexuals contra mundum. Traditionally, it is the right which seeks to unite the nation – though of course Mr Trump is not traditional. The culture war (Bismarck’s Kulturkampf) will continue. The New Yorker thinks the Democratic House will only intensify the state of siege and crisis that has engulfed Washington. Overall, the new political dispensation will not impact policy directly. The markets reacted positively. The Dow and S&P 500 jumped by 2.1 percent, while the NASDAQ climbed by 2.6 percent.

Note that the 115th US Congress will continue to sit until 03 January 2019. Only thereafter will the 116th take over and will Ms Pelosi be appointed Speaker. Mr Trump will only have to navigate legislation through a Democratic House for 22 months before he stands for re-election.

As a taste of things to come, Attorney General Jeff Sessions is already out on his ear. Fearing that the Russia probe conducted by Robert Mueller will intensify under a Democratic House, Mr Trump has removed a jurist who has been scrupulously neutral. In his place he has appointed a human shield in the form of Mathew Whittaker – a man who has expressed doubt about the bona fides of the Mueller inquiry and who has criticised Mr Sessions on Twitter. This inquiry is Mr Trump’s Achilles heel – and he knows it.

A few commentators have speculated that the President will try to be nicer – though he wasn’t very nice to CNN’s Jim Acosta at the press conference on 07 Novemberi. Perhaps he will experiment with conciliation – before attempting to annihilate the Democrats once again in 2020. So long as Wall Street holds up (my working hypothesis), he should be in with a very good chance.

What is really wrong with America?

These elections have induced much hand-wringing on the part of America’s liberal media. Has America changed fundamentally?

It was therefore interesting that a diagnosis of America’s ills was released during the campaign, not by a despairing liberal but by a guru of American capitalism. Alan Greenspan (Chairman of the Federal Reserve 1987-2006), still going strong at 92, has published Capitalism in America: A History. Greenspan writes: “America is looking less like an exceptional nation and more like a mature economy”. According to Mr Greenspan, America is mired in regulation, cursed by slow growth (despite the recent spate) and fearful about the future.

For Mr Greenspan, the contrast with dynamic China could not be starker. A third of jobs in the US require official authorisation; barbers, manicurists, even interior designers must be licensed. (He makes America sound like France). For Mr Greenspan, the rot set in with FD Roosevelt’s New Deal (1933-36), when dynamic capitalism was undermined by state planning. Things have only got worse since then.

Since 1973 manufacturing wages in real terms in America have dropped by 15 percent. Productivity growth has collapsed since the financial crisis of 2008-09. (That will sound familiar to British readers). Furthermore, Mr Greenspan thinks that Washington drew entirely the wrong lessons from the crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), he thinks, was a moralistic reaction to the collapse of Lehman Bros., which has stymied investment. Meanwhile a growing proportion of the total economy is being dedicated to healthcare.

For Mr Greenspan and his co-writer, the economist Adrian Wooldridge, Mr Trump is not the solution but rather part of the problem. His administration favours the incumbents, the billionaires who will benefit most from his tax reforms. Meanwhile, American democracy risks becoming more ill-tempered and fractious – which goes against the cultural grain of a people who are unfailingly gracious and well-mannered in everyday life.

For most Democrats, especially the millennials, capitalism has gone too far. For Mr Greenspan, as for Mr Trump, America is not capitalist enough. The fear is that America, on the back foot against China, mass immigration and mindless globalisation has moved from its founders’ focus on life, liberty and the pursuit of happiness to the post-Bismarckian imperatives of blood and soil.

Afterword – unintended consequences…

This Sunday we shall commemorate the armistice that finally brought to an end the bloodiest war in human history. Mr Trump will be in Paris – a guest of his younger friend President Macron. (Macron intends to honour, amongst others, Marshal Pétain. Pétain is probably the Frenchman most culpable for the rounding-up of French Jews for transportation to the Nazi death camps in WWII).

It is sobering to reflect that, at this milestone, the President of the United States sings the praises of barbed wire. That atrocious war, most historians now think, was “a mistake” in so far as the political leaders of the day had no idea what would be the unintended consequences of their actions in 1914.

What is so concerning about Mr Trump for this British America-loving observer is that, for all our understanding of why ordinary Americans love him, we just don’t know how he would respond to a major geopolitical crisis. What would he do if Russia invaded Ukraine or if the Chinese closed the South China Sea to foreign shipping? (By the way, I’ll be writing about the main geopolitical themes for 2019 in next month’s Master Investor magazine – not very Christmassy, I know).

When Archduke Franz Ferdinand, heir presumptive to the Austrian throne, and his morganatic wife were gunned down as their motorcade turned a corner in the city of Sarajevo on 28 June 1914, no one could have imagined that this isolated act of terrorism would precipitate the clash of empires and the greatest carnage in the history of the world. States that had existed for more than 500 years would dissolve; illustrious ruling houses would tumble and America would emerge as the pre-eminent nation. Now, it is America’s pre-eminence that is itself in play.

The armistice finally brought the conflagration to an end exactly one century ago on Sunday at the eleventh hour of the eleventh day of the eleventh month. The car in which the Archduke was assassinated can still be seen in Vienna. Its registration number is: 11-11-18.

I’ll wager Mr Trump doesn’t know that.