As the feds close in on Donald Trump, the mafia analogies write themselves. James Comey compared the president to a mob boss is his Sunday interview with George Stephanopoulos, while former Attorney General Eric Holder called the Mueller investigation, and the related effort in the Southern District of New York, a “classic” case of corruption and white-collar crime, predicting that the investigation was entering its final months.
The president is reportedly quite concerned about the recent turn the special counsel’s investigation has taken, worriedly calling friends and acquaintances in a frantic search for advice that may save his presidency. And even the president’s friends can’t help but liken the situation to a mob takedown. Former Trump divorce lawyer Jay Goldberg says he told the president that Trump’s “lawyer” and outer-borough dauphin, Michael Cohen, is guaranteed to flip on the president if he is charged with a crime. “The mob was broken by Sammy ‘The Bull’ Gravano caving in out of the prospect of a jail sentence,” Mr. Goldberg warned Trump, pointing out that even hardened mafia killers will flip rather than face federal jail time.
The slow-motion collapse of the Trump Administration is more than just entertaining. The timing and manner of the investigation’s revelations will be crucial for predicting the contours of federal trade and tax policy.
Take for instance, the president’s brewing trade war. Though the administration has enacted tariffs on a handful of products like steel and aluminum, most new duties are still in the proposal stage, like the 25% tariffs the threatened against $50 billion in Chinese goods in retaliation for intellectual property theft. The trade representative’s office is still compiling public comment on the proposal for a hearing to be held at the end of May. This means the tariffs themselves won’t be unveiled for several more months, i.e. in the middle of the midterm elections campaigning and right around when Holder predicts Mueller will be wrapping up his investigation.
Even if Mueller uncovers criminal behavior on the part of the president, or compelling evidence of collaboration between the Russians and his presidential campaign, it’s easy to see Trump deciding to deny reality and dig in for a long fight. He would need the support of just 34 Senators to save himself from being removed from office if impeached, and given the Trump-country tilt of the U.S. Senate, that could be achieved even if his approval ratings dip well below 33%.
The problem for American trade warriors, however, is that these rural, red-state senators who are Trump’s last line of defense are also hyper critical of proposed tariffs for the effects they will have on the U.S. farming sector. It’s hard to see the president having the political capital to persecute his trade war against China while also defending against the Justice Department and the Democratic Party.
In other words, the Mueller investigation is looking more like insurance that the worst of Trump’s instincts on trade will be reined in, if not by Trump’s early ouster from office, then because he’ll need the support of rural, free trade Republicans to avoid being removed altogether.
The fate of the recent corporate tax cuts could also hang in the balance. The GOP reform effort looks increasingly as if it will only have a short-term stimulative effect on the economy, while leaving the U.S. trillions deeper in debt than it otherwise would have been. And the more spectacular Trump’s political collapse, the more likely the Democratic Party can win back both Congress and the White House in 2020. In such a scenario, it’s almost impossible to foresee the Democrats doing anything but enacting a near total repeal of those corporate tax cuts, as this is money they’d rather see put towards priorities like single-payer healthcare, paid family leave, or universal pre-k.
Therefore, the best outcome for markets is likely a relatively quick and spectacular explosion of Trump’s political fortunes. If he can be removed from office sooner than later, the chances that the political ramifications for the GOP can be limited to the 2018 midterms and contained in time to mount a competitive bid for the presidency in 2020 will be greater. If you’re long the S&P, in other words, you should hope that Michael Cohen cracks before it's too late.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.