An Investor's Guide to the New Republican Party
Joe Biden's withdrawal only accelerates the shifting political alignments that are changing America's business model
The headlines just keep coming. President Joe Biden’s decision to retire adds to the confusion around the shape of the campaign ahead, but America’s economic trajectory is coming into view even amid the current election uncertainty. Granted it's based on the vision Republicans embraced at their convention last week, and much of it will be impossible to deliver given the legal, budgetary and bureaucratic hurdles ahead. But with Democrats in significant transition themselves, these new Republican priorities have already shifted the debate around how the country does business.
The hope is that these new priorities will still deliver plenty of innovation and reliable growth, but this now comes with more protectionism, less immigration and a decisive turn inwards. You will decide for yourself if this is where the country should go, but economics texts tell you to expect a future that is more inflationary and less inventive. History books suggest an introspective United States will also be less secure.
Donald Trump has done more than any single politician to make tariffs an acceptable diplomatic tool after three decades of falling trade barriers. Most striking last week was the Republican denunciation of the North American Free Trade Agreement (NAFTA) that was signed by President George H.W. Bush and China’s “Most Favored Nation” treatment that was approved by Republican and Democratic presidents back to Ronald Reagan.
“For decades, our politicians sold our jobs and livelihoods to the highest bidders overseas with unfair Trade Deals and a blind faith in the siren song of globalism,” reads the spunky and delightfully punctuated party platform. An earlier edition of Joe Biden couldn’t have said it better, which will make it easier for any future leader to extend and expand tariffs on China and others.
What also emerged from the convention is that tariffs aren’t just meant to protect American workers or shrink the trade deficit. They are now fair game for all kinds of diplomatic pressure. Trump bragged that his tariff threats had forced the repatriation of criminals who had crossed the southern border and stopped countries from buying Iranian oil. Democrats will insist that tariffs be more focused, but tariffs there will be.
Along with more tariffs, of course, there will be fewer immigrants. Vice Presidential nominee J.D. Vance made a brief reference to supporting legal immigration with a nod to his Indian in-laws, but legal flows fell during Trump’s last time in office even before the pandemic hit and it will be the brave Democrat who starts quoting the Statue of Liberty to champion more open doors.
Perhaps the most striking departure last week was a Republican convention that embraced the plight of America’s workers over the promise of free enterprise. Traditional party paeans to the markets and entrepreneurship disappeared into a litany of complaints about a system rigged against the little guy.
The platform itself is dedicated to “the Forgotten Men and Women of America” and insists “The Republican Party must return to its roots as the Party of Industry, Manufacturing, Infrastructure, and Workers.” More succinct was Vance, the Hillbilly Elegy author, cribbing shamelessly from traditional Democratic talking points: “We’re done, ladies and gentlemen, catering to Wall Street. We’ll commit to the working man.”
Underscoring the shift, Sean O’Brien declared himself the first Teamsters leader to ever speak at a Republican convention even if his calls for “legal protections that make it safer for workers to get a contract” caught the audience off guard. And that was all before Trump reiterated his dramatic, if somewhat random, promise to eliminate taxes on tips!
On foreign policy, isolationism may be too strong a word, but Republicans want fewer international commitments even as they promise more defense spending. In Europe, the platform promises “strengthening Alliances by ensuring that our Allies must meet their obligations.” In a Business Week interview last week, Trump also questioned defense commitments to Taiwan, which he claims has also fallen short in paying for its own security.
Investors should plan on a new U.S. business model now taking shape as the political debate turns to barriers, intervention and retrenchment.
The ultimate Democratic nominee will argue America’s alliances are sacrosanct, but the debate will center much more on the affordability and limits of these commitments. As for the Pentagon’s budget, Democrats will need to explain why they oppose what Republican’s describe as “A GREAT IRON DOME MISSILE DEFENSE SHIELD OVER OUR ENTIRE COUNTRY.”
There was much more that was said in Milwaukee (“keep men out of women’s sports”) and much more that was barely said (right to life, debt burden, freedom expansion). But the direction of travel is toward a country that will make it harder for goods and people to cross its borders, which on the margin will make inflation more persistent and technological progress more difficult. Meanwhile, whenever the United States has turned inward and raised questions about commitments to allies, the world turns more dangerous and volatile.
A convention’s rhetoric ignores the hard truths of actually governing, but the consistent promises last week confirm that the party of openness, markets and engagement is gone. Democrats will spend an intense month now honing their own program as they prepare to gather in Chicago to choose a fresh nominee. The shape of the national conversation ahead, however, is clear. Investors should plan on a new U.S. business model now taking shape as the political debate turns to barriers, intervention and retrenchment.
The right is the new left.