US Congress deadlocked but Trump free to act

At the end of November 2018, US president Donald Trump signed a hard-fought trade agreement with Mexico and Canada on the sidelines of the Group of 20 summit. The deal must now be ratified by legislators in all three countries, which could be problematic for the US, at least. 

Earlier in the same month, US elections led to a divided Congressional government, which will have ramifications for foreign companies doing business in the US.

To begin with, there is ongoing uncertainty about the USMCA (US Mexico Canada Agreement), which replaces the North American Free Trade Agreement. The Democratic party will control the US House of Representatives from January 2019, and whether they will agree to ratify the new agreement is open to question.

Indeed, deadlock is expected to be the rule when the new legislative session begins. In some cases, such as the USMCA, this could mean further uncertainty about policy. 

In most other cases this will mean no new legislation that could affect business (as a major revamp of the US tax code did in 2017) will happen. It could also mean that necessary business may also not get done. For example, the national flood insurance programme is set to expire during Congress’s next term, and extending it will require bipartisan agreement.

A deadlocked Congress, however, does not preclude the executive branch from issuing new rules and regulations. Mr Trump and the executive branch agencies can still implement policies. For example, just days before the USMCA signing, the Treasury Department released important rules relating to US corporate income earned in high-tax foreign countries. The rules are part of the US Tax Cut and Jobs Act of 2017, a measure so comprehensive that a year after it came into effect the executive branch is still releasing guidance regarding it. Expect this to continue.

Also expect a continuation of the Trump administration’s determination to use tariffs to modulate trade policies around the world. Congress has little say in this and Mr Trump has shown he is determined to keep up the pressure. 

In fact, every executive branch under Mr Trump’s control is likely to embody his policies on global trade and foreign relations. The Treasury Department’s Committee on Foreign Investment in the United States, for example, has been tightening regulations on foreign investment in the US and similar actions will likely follow in the next two years. Recently it broadened coverage in several areas, including hi-tech and biotechnology, deeming them vital to US national security.

A related move came from the US Commerce Department, which sought comments to be filed by December 19, on 14 broad emerging technologies and whether they should be subject to export controls. These include biotech, AI, quantum computing and advanced materials. In 2019, the department is expected to call for comments on export controls around fundamental or mature technologies, such as semiconductors and manufacturing equipment. The guiding principle behind these moves is the Foreign Investment Risk Reduction Management Act, aimed at stemming the leak of sensitive technologies to foreign countries, especially China.