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Tariffs And Bank Regulations Are Splitting Both Parties In The Lead-Up To The Midterms

We think of today’s Washington as being rigidly divided along party lines on nearly every issue. But a bloc of Democrats in the Senate just joined with Republicans and the Trump administration on a bill that would lighten some restrictions on banks imposed by the Dodd-Frank financial regulation law, one of President Obama’s signature policy achievements. Meanwhile, some congressional Republicans are considering legislation that would stop President Trump’s new tariffs on steel and aluminum imports, which several Democrats and labor leaders have publicly supported.

Bipartisanship? What is going on here? First, on policy, it’s clear that the economic issue divides within the two parties that were exposed in 2015 and 2016 remain unresolved, as both the Democratic and Republican parties have establishment wings clashing with populist blocs. Second, I suspect that some Democrats running for re-election in more conservative-leaning states are looking for ways to make their public profiles less liberal by aligning with some of Trump’s positions.

Let’s start with the policy. On the biggest issues of 2017 (health care and taxes), Trump basically abandoned the populism of his presidential campaign and signed on to traditionally conservative bills. Democrats, even ones in red states, felt no need to back these bills since they did not reflect their priorities and were unpopular with the public. No Democrat in the House or the Senate voted for either the tax policy overhaul or the GOP’s various measures to repeal Obamacare.

But the unity within the two parties and the clear divide between them in 2017 should not make us completely forget about 2015-2016. In those years, Democratic Sen. Elizabeth Warren of Massachusetts was casting the Obama administration as too friendly to Wall Street, and independent Sen. Bernie Sanders of Vermont was making a similar case against former Secretary of State Hillary Clinton in the Democratic presidential primaries. On the GOP side, Trump was proposing new tariffs, opposing international trade deals and generally talking up more protectionist, “nationalist” stands; establishment-oriented presidential candidates like former Florida Gov. Jeb Bush and Florida Sen. Marco Rubio sharply criticized one of Trump’s tariff ideas and embraced trade agreements that Trump opposed.

It seems like the energy and passion of the Democratic grass roots is now on the left, echoing the more populist visions of Sanders and Warren. So I am a bit surprised both by the size of the bloc of Senate Democrats who voted to roll back some of Dodd-Frank (16 Democratic senators and one Democratic-leaning independent joined Republicans — more than a third of the Senate Democratic caucus) and by the individual members from more liberal states who joined this effort, like Virginia’s Tim Kaine and Mark Warner. But I was not surprised by the reaction of Warren, who has suggested that her Democratic colleagues who backed this bill are tools of Wall Street and that they will be partly responsible if there is another stock market crash and taxpayers bail out the large banks again.

The embrace of this bill by those 17 members of the Senate Democratic caucus suggests that the populist wing of the Democratic Party has not completely taken over. The Democrats backing the bill argue that this is simply a readjustment of the measure’s language to get rid of some of its unintended consequences — they feel that the Dodd-Frank rules were meant to apply to the biggest banks in the country but are currently hitting too many smaller banks. (A key provision that the Senate is considering stipulates that only banks with more than $250 billion in assets would be considered “systemically important financial institutions” and therefore subject to a number of provisions in Dodd-Frank targeting the largest banks. Under current law, that oversight applies to banks with more than $50 billion in assets.)

But it’s easy to see this dispute as a manifestation of the tug-of-war going on between more liberal and more centrist Democrats. The 10 Senate Democrats with the lowest Trump Scores (FiveThirtyEight’s measure of how often they vote with the Trump administration) all opposed this legislation. The 10 Senate Democrats who vote most with the Trump administration all backed this bill.

On the other side of the aisle, the split on tariffs is even sharper: One man (Trump) stands against the Republican Party establishment. Before Trump formally announced the tariffs, which are expected to go into effect this month and are designed to lift the U.S. steel and aluminum industries, a group of 107 House Republicans signed on to a letter expressing concerns about them. In contrast, there is really no organized effort in the broader Republican Party or on the Hill to defend the tariffs. The president had the power to implement his policy anyway, but he does not appear to have persuaded the rest of the GOP leadership to move in a different direction on trade.

Tariffs do have their supporters, though — among the opposition. Democratic Sens. Sherrod Brown of Ohio, Bob Casey of Pennsylvania and Joe Manchin of West Virginia were among those who spoke positively about them, along with Richard Trumka, head of the AFL-CIO, a coalition of unions across the U.S. Brown in particular has long warned about the dangers of international trade for American workers. On trade policy, Trump is simply more aligned with Democrats in the Rust Belt than Republicans like House Speaker Paul Ryan.

And here’s where we come to politics. What if the reshuffling of the party lines on Dodd-Frank and tariffs is all about the midterms? Seven of the 10 Democrats running for re-election this year in states Trump won in 2016 support the Dodd-Frank rollback. Brown and Casey, who are among that 10, don’t support that legislation — but aligning with Trump on tariffs could help their prospects, since these members may need some Trump voters who liked his rhetoric on economic issues in 2016 to back them this fall.

Similarly, opposing tariffs and supporting a rollback of Dodd-Frank, which are the positions of most congressional Republicans, align perfectly with the views of the Koch brothers and other big-money donors who will be critical to Republicans keeping control of Congress. Backing Trump’s protectionist policies could help GOP candidates with the party base, which strongly supports both the president and tariffs, but donations and support from the GOP’s establishment donors may be even more valuable. (We should note that backing a rollback of Dodd-Frank could help Democrats get more money from the financial community, too.)

While these political considerations matter, I think there is at root a real ideological split within the two parties on economic issues. If Trump continues to take more protectionist positions, that is going to force the Republican Party to either move toward his views or use congressional authority to stop him. It’s not clear if Sanders or Warren or both will run for the 2020 Democratic nomination, but the broader issue of how opposed to big banks and Wall Street the party should be will surely factor into the next presidential party primary.

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