There are just 77 days until election day, and much of the media is focused on the effect a new Congress will have on the Mueller investigation, as well as the implications of Democratic subpoena power for President Trump and this business empire. But investors should also seriously consider the idea that a Democratic takeover of the House of Representatives will have on public policy and the stock markets.
At first blush, it makes sense to assume that a Blue Wave in November will have no effect on actual public policy. After all, even if the Democrats are able to assume control of the House of Representatives come November, it’s highly unlikely they’ll be able to win back the Senate. Meanwhile, Donald Trump will remain in the White House with his veto pen at the ready to block any major legislation the Democratic Party can cook up.
Gridlock may be the most likely outcome of divided government come 2019, but it’s just one possible scenario. Investors need to take seriously the chance that President Trump interprets a November loss as a reason to abandon policies supported by Republican Party elites, but disliked by the majority of American voters, both Democratic and Republican.
President Trump's ascendancy to the White House would likely have been impossible if not for his willingness to buck GOP orthodoxy on key issues, as he did with his promise to not cut Medicare, Medicaid, or Social Security benefits. His promises to bring down healthcare costs, in part by taking aggressive action to bring down drug prices, was music to the ears of the millions of Republican voters who are loyal to the GOP for cultural reasons, but actually would like to see higher taxes on the the rich and a government guarantee of healthcare coverage.
As president, Trump has almost entirely abandoned the economic populism that made him stand out in a crowded field of Republicans in 2016. He stood by Republican attempts to cut Medicaid as part of their Obamacare repeal effort and championed a corporate tax cut that undercuts the government’s ability to maintain current Medicare and Social Security benefits. Most reassuring to Corporate America was the president’s unveiling of a toothless set of policies to control the rising costs of prescription drugs. Whereas the pharmaceutical industry was a popular rhetorical target for the president during the campaign and in the early months of his presidency, he has ultimately decided to toe the GOP line that new laws should not be passed to impose price controls on popular drugs.
Investors have responded with enthusiasm for pharma stocks, the sector performed nearly twice as well as the S&P 500 year-to-date. But this enthusiasm is misguided, as we have long since reached the high water mark for business friendliness in Washington. While we should expect the president to continue to support policies that help his businesses and those of his friends, like low corporate taxes and a defanged EPA, Wall Street should be prepared for the possibility that Trump to rediscovers the benefits of positioning himself as the enemy of big business once again.
If Nancy Pelosi does have the speaker’s gavel come January of next year, you can bet that the Democrats in the House will do their utmost to highlight the differences between Trump’s rhetoric on economic policy and his actions. One of the single best vehicles for this project will be some form of the Medicare Drug Price Negotiation Act, which would give the Department of Health and Human Services a host of new powers to negotiate or even impose lower prices on drug companies for users of Medicare’s prescription drug program. Candidate Donald Trump more or less endorsed this very law, arguing in 2016 that allowing the government to negotiate down drug prices would save the Treasury $300 billion per year.
It would be a mistake to assume that because President Trump has governed like a mainstream Republican on economic policy during the first two years of his presidency, that he will continue to do so during the next two. There appear to be few issues where the president is a true ideologue—outside of trade policy, he has indicated that most of his positions are negotiable. And if the Republican Party can no longer protect President Trump from Congressional investigations that could reveal embarrassing facts about him and his businesses, the president has little reason to defend policies dear to it, which help keep pharmaceutical profit margins between 15% and 20%— levels unheard of this side of Silicon Valley. The president may be stubborn and impulsive, but he also knows how to take the temperature of his aging base. And if the Democrats can successfully frame healthcare costs as the defining issue of the next two years, it’s likely that the President will rediscover the utility of posing as the defender of the people against predatory drug companies.
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.