Thought of the Week:
I’m going to go out on a limb today and suggest that the story of a pet squirrel can help explain the result of this week’s presidential election. Beginning early Wednesday morning, coming from the left and right, I started hearing all the post-mortems. Beyond social media, broadcast media, cable TV, and talk radio, I’ve been to or spoken with the American Enterprise Institute, Brookings, Bloomberg Government, Capital Alpha, CapstoneDC, National Journal, and Politico; tonight, I’ll even have dinner with famed political analyst Charlie Cook. Reasons offered up for President-elect Trump’s victory and Vice President Harris’ loss run the gamut—it was the urban/rural divide, the education gap, the changing demographics of the Republican Party, due to Latinos leaving the Democratic Party, suburban white women who didn’t turn out, the “bro” vote, a combination of misogyny and racism, President Biden’s fault, African American males’ fault, and even a quasi-biological/spiritual movement of Mother Earth self-correcting herself. I guess all of these have some merit in one way or another. But in my opinion the explanation is much simpler, and everything you need to know about this election can be found in the story of “Peanut the Squirrel.” For seven years, Peanut was a rescue pet who over time amassed nearly 700,000 Instagram followers. Peanut delighted his fans by wearing miniature cowboy hats and performing tricks. Peanut, and his sidekick, Fred the Racoon, were such sensations that their owner established in Peanut’s name a non-profit animal sanctuary that has rescued more than 300 animals. Hearing that a citizen was keeping wild animals as pets, local New York government officials sprang into action, descended on the home, and during the raid confiscated both Peanut and Fred. Amid all the commotion, Peanut bit one of the agents, and as a result, both Peanut and Fred were euthanized to test for rabies. Are there good reasons wild animals shouldn’t be kept as pets? Sure. Might it be necessary for local officials to make house calls? Of course. But in solving a problem that they themselves created, whether through hubris or something else, government officials lost their way in providing the very public service they were originally designed to offer. And here in lies the problem. Rather than being laser focused on solving a critical community issue, local agencies used considerable public resources to accomplish the opposite of their intended purpose. Peanut wasn’t a threat to society; in fact, his notoriety helped to establish an animal sanctuary. Oddly, the story struck me more than I otherwise figured it would. Yes, it was sad and senseless, but it also happened right about the same time I read a polling statistic that a full 70% of the public believed that the country was on the wrong track. The right track/wrong track question is a staple of presidential polling, and history tells us that years in which the presidency flipped 1980, 1992, 2000, 2008, 2016, and 2020, the average wrong track number was coincidentally right at about 70% (years in which the incumbent party held the presidency, the wrong track average was just 49%). The right track/wrong track number is simply a referendum on whether one believes the current administration is delivering on the most important services that they were voted in to perform, whether that be the economy, foreign policy, immigration, or social/cultural issues. In voter’s minds, Vice President Harris was unable to distinguish herself as separate and apart from the Biden/Harris administration, and like the negative fallout from local government action regarding Peanut, Tuesday’s election was simply a repudiation of the incumbent administration’s record. As the old saying goes, considering the voter’s mindset, not even a blind squirrel was going to find an acorn now and again.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Brownstein’s Initial Post-Election Analysis. President-elect Trump declared victory overnight after convincing wins in Georgia, North Carolina, and Pennsylvania, and further electoral gains preview a red wave this cycle. Senate Republicans secured a clear majority, successfully defending incumbents and gaining at least three additional seats with victories in Montana, Ohio, and West Virginia, while several key Senate races that will determine Republicans’ final margin of control in the chamber remain too close to call. As expected, it may take days or weeks to officially determine control of the House next session. The fate of the House will determine the full slate of powers available to Republicans—chief among them: whether they can use budget reconciliation to enact legislation next year. Budget reconciliation is an invaluable tool, and its viability is particularly compelling as Washington prepares for negotiations on tax policy, including expiring provisions in the Tax Cuts and Jobs Act (TCJA). Although governing dynamics will differ notably in a Republican trifecta scenario versus continued divided government, the incoming administration is expected to move swiftly to freeze and potentially rollback various Biden-era rulemakings regardless of congressional makeup. While Republican control of the Senate is assured, the conference must convene next week to decide on a new era of leadership in the chamber. Longtime party leader McConnell (R-KY) will pass the baton to a successor—and soon-to-be majority leader. In any scenario, the Senate agenda will feature a steady stream of agency appointees and judicial nominees, mixed with proposals that aim to reduce federal spending, roll back regulatory burdens, enhance border security, and curb the influence of China. A Republican House would coalesce around similar policy goals, but a Democratic House could focus heavily on oversight of the new administration.
Eurasia Group Believes President Elect Trump’s Macroeconomic Policies Will Negatively Affect Latin America. Latin America will not be a priority for President-elect Trump when he returns to the White House, but his economic policies will carry important spillover risks for countries in the region. This includes a stronger dollar, higher U.S. interest rates stemming from more inflationary policies, and slower growth, which will present a particular challenge for those countries already struggling with macroeconomic imbalances. From a bilateral perspective, Mexico will be the biggest loser, as it is headed for a tense review of the United States-Mexico-Canada Agreement (USMCA) in which it will have little leverage. The Trump administration is also likely to take a more hawkish stance toward Venezuela, with likely GOP control of both houses of Congress exacerbating the risk of sanctions-related legislation advancing. At the same time, the conservative governments in El Salvador and Argentina are celebrating Trump’s victory, on expectations that it will improve IMF terms; however, those countries will also be among those most negatively affected on the macroeconomic front. Trump’s immigration policies will pose a big risk for remittance-dependent economies such as Guatemala, Honduras, El Salvador, and the Dominican Republic.
Inside U.S. Trade Wonders What Trump’s Victory Means for Trade Policy. While the election results raise a near infinite number of questions about what comes next for trade policy, one thing is nearly certain: President-elect Trump will make good on his campaign promise to aggressively expand tariffs. Beyond that, the future of U.S. trade—and the world trading system—is unclear. What we know: former President Trump won a convincing victory, making inroads across demographics, and winning several battleground states where his pledges to use tariffs to protect key industries and spur manufacturing growth clearly resonated. His path to overhaul Washington will be made easier by a Republican-controlled Senate. Although the status of the House remains unclear as of this writing, the incoming president will have a free hand to install allies in key posts and face limited resistance from free traders in the Senate. Trump and his allies, including former USTR Lighthizer, who is almost certain to take a senior Cabinet post, have said tariffs can be imposed without congressional approval. In fact, tariffs are coming; Lighthizer and Trump believe that aggressive new duties are needed to combat unfair foreign trade practices and to boost U.S. industries. At minimum, a 10% tariff on most imports should be expected. Higher duties on China are also likely. Beyond that, Trump has been all over the map in threatening duties of all kinds. What we don’t know: A lot. While Trump has warned allies, including Europe and Mexico, that tariffs are coming, what this might mean for his signature trade deal, the U.S.-Mexico-Canada Agreement, isn’t clear; certainly, the USMCA’s 2026 review takes on greater importance with Trump headed back to the White House. The former president has also made clear that he views tariffs as leverage to win better trade terms from allies.
“Inside Baseball”
DOJ Set to Drop Federal Cases Against President-Elect Trump Before Inauguration. The special counsel overseeing federal criminal cases against former President Trump is preparing to drop prosecutions of the president-elect before he is sworn in, according to Justice Department officials. Special Counsel Smith is evaluating how to wind down two federal cases against to comply with a department policy that a sitting president cannot be prosecuted. A Justice Department policy put in place in 2000 states that “the indictment or criminal prosecution of a sitting President would unconstitutionally undermine the capacity of the executive branch to perform its constitutionally assigned functions.” Several questions remain unanswered about how the prosecutions will be closed, including whether Trump’s co-defendants in the classified documents case can still be prosecuted. The classified documents case already was dismissed by a federal judge in Florida who ruled that Attorney General Garland didn’t have authority to appoint and fund a special counsel. The department is appealing that ruling to preserve the institutional ability of the agency to appoint special counsels in the future.
In Other Words
“Economic freedom, not protective tariffs, produced the economic miracle of the 19th century. If we will give it a chance in the 21st century, it will do it again,” former Texas Congressman and Senator Phil Gramm.
Did You Know
President Warren Harding had a pet squirrel named Pete, and President Calvin Coolidge had two pet racoons—Rebecca and Reuben.
Graph of the Week
Corporate Executives Could Not Stop Talking about the U.S. Election. As potential policy changes loom large, recent earnings calls have been filled with talk of uncertainty about the aftermath of this past Tuesday’s election. Much of the C-suite angst is over the risk of additional tariffs, particularly now that former President Trump has won a second term. Business leaders say any new fees on imported goods could increase costs up and down the supply chain, and force some companies to rethink manufacturing and sourcing. What’s more, Vice President Harris’ support for higher corporate tax rates and additional regulation had also been sources of immediate concern.
