Geopolitical Outlook 2018

January 16, 2018 08:00 AM
The Issue With Forecasting

Constitutional crisis in Washington

After winning the November 2016 presidential election with fewer votes than his rival, owing to the peculiarities of the U.S. electoral system, President Donald Trump’s approval rating has fallen to historic lows, while disapproval of the president is at historic highs. Less than one year into its four-year tenure, the Trump administration is being investigated by multiple Congressional committees looking into whether the president’s campaign staff colluded with agents of the Russian government in the months leading up to the election, while Special Counsel Robert Mueller is also seeking to determine whether the president obstructed justice by firing FBI Director James Comey among other things. 

The Trump administration’s legal and political woes are a recipe for an electoral disaster for the governing Republican Party at next year’s mid-term congressional elections. The opposition Democratic Party would need to make a net gain of 24 seats to win control of the House of Representatives, the probability of which is currently 45%. Such an outcome would significantly increase the probability of Trump’s impeachment, which is effectively zero as long the Republicans retain their majority in the lower chamber, but could approach 100%, depending on what Mueller’s investigation reveals, if the Democrats manage to claim a majority.

Normally, the government would be expected to limp along under a scenario in which the opposition controlled the House, as it did for much of Barack Obama’s presidency. However, given Trump’s frequent expressions of disdain for legal checks on his exercise of power, it is likely that he would test the limits of his authority, creating the risk of a constitutional crisis that results in a dangerous increase in political polarization. Under those circumstances, Trump and his Republican allies in the Congress might seek to increase their leverage with threats of government shutdowns and standoffs over the debt limit, much as they did during Obama’s presidency. However, the greater degree of polarization would increase the risk that the two sides might fail to reach the 11th-hour compromises that previously enabled the government to avert disaster.  

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About the Author

Chris McKee is president and CEO of PRS Group, which provides quant-driven political and country-specific risk forecasts. He is also CEO and portfolio manager for PRS’ parent Gavea Emerging Markets. @prs_group