Thought of the Week:
Earlier this week, I traveled to Boston; it was my first trip to Beantown since before the pandemic. Although I wasn’t lucky enough to catch a Sox game at Fenway, I did have time to pop into the Boston Tea Party Museum, see the Old North Church, and eat dinner in Little Italy. The reason for my trip was to participate in the Conference Board’s regular Government Relations Executive Council (GREC) meetings. The GREC is comprised of GR professionals from 60 major corporations, including Fidelity Investments (our host), Texas Instruments, and Warner Music. At this meeting, we addressed such issues as: Policy Advocacy and Protecting the Brand During Partisan Times; Will AI be an Advocacy Resource or Risk; and What Does ESG Mean for the Public, Policymakers, and Corporations. Our next meeting will be in Little Rock at the Clinton Presidential Library and feature a meeting with the former president. Participation in the Conference Board’s GREC fits within two of the Washington office’s five pillars—Trade Association Leverage and Thought Leadership. Recently, under Trade Association Leverage and Thought Leadership, the Washington office assisted in producing two hard data reports. The first comes from the National Journal’s Corporate Insider Group, which completed a survey on Affirmative Action. While a summary of findings is linked below, top takeaways from the survey were: (1) most companies are hesitant to weigh in on the Supreme Court’s upcoming affirmative action decision, and nearly all will seek to follow their peers in addressing the decision; (2) employees present the greatest pressure on affirmative action, with ERGs and rank and file employees being the top source of stakeholder pressure. In fact, across all societal issues, employees are the top source of pressure on companies to engage; (3) the companies facing pressure from multiple stakeholders will involve a range of functions in formulating a response—Communications, Government Affairs, Human Resources, and Legal Compliance; (4) while internal communications are likely to be the most common short-term action following the decision, outside of an internal statement, there is little consensus about what types of outside responses to prioritize, with external statements being the least popular option, although 20% of companies are likely to release them; and (5) Insiders are largely uncertain about long-term actions following the decision. Most are expected to communicate racial equity efforts back to their staff and many expect to partner with other organizations on corporate DEI efforts. A link to the full survey can be found here: Gravity Research_Pre-Decision Affirmative Action Pulse Poll Survey Results.pdf. The second comes from the Global Business Alliance (GBA) who will release its latest Inbound Investment Survey in the coming days. Key takeaways from the survey are as follows: (1) International companies are optimistic about hiring over the next six months, even though they remain generally pessimistic about the U.S. business climate overall; (2) When asked to compare the U.S. business climate for foreign-headquartered companies today to the climate prior to the COVID-19 pandemic, company executives were mostly negative; and (3) “Investments in U.S. infrastructure” was the largest positive factor likely to impact international companies in the United States over the next 12 months, while “continued inflationary pressure” is the largest negative factor likely to impact businesses.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group Asks/Answers Whether a Resilient U.S. Economy Could Become a Headwind for President Biden’s Reelection. Although the Federal Reserve paused its rate hike cycle this week, a resilient U.S. economy, strong jobs market, and sticky inflation suggests a higher terminal policy rate of 5.75%—50 basis points higher than previously expected. In turn, a shallow recession is likely to come later, in 2024, than most analysts previously expected. Economic downturns and voters’ perceptions that the economy is heading in the wrong direction have often undermined the reelection hopes of incumbent American presidents; and higher-for-longer interest rates could be a significant detriment to President Biden’s reelection campaign. Still, political factors such as abortion, Biden’s age, and the Democratic Party’s ability to make his GOP opponent’s fitness for office an issue are likely to be the primary drivers of the campaign. As perceptions of the economy have become increasingly a function of partisanship, this could allow Biden to survive even a long-lasting recession.
The Observatory Group’s Federal Reserve Meeting Postview. This week, the Federal Reserve left rates unchanged, kept its policy guidance referring to the possibility of more rate hikes, and unexpectedly showed a median projection consistent with two more rate increases in 2023. The higher-than-expected median projection for two additional hikes this year is a product of continued strong core inflation data and evidence of persistent excess demand for labor. At the same time, Chair Powell’s comments were consistent with the idea that the central bank has moved to a stage in the rate cycle with less frequent hikes, not the previously telegraphed view that the argument to wait for more data compelled an open-ended pause. Consequently, going forward, the burden of proof lies with incoming data between now and the July 25-26 meeting to demonstrate that it is reasonable to wait before making another rate move. Without that evidence, expect a rate hike at the July meeting. And if the U.S. is entering a slower rate hike stage, a November hike looks more likely than September or December.
Politico Reports on USTR Tai’s Speech Declaring a New U.S. Trade Policy that Assails Globalization. This week, USTR Tai declared a new approach to American trade policy, arguing that the pro-globalization policies pushed by Washington for decades have hollowed out the U.S. middle class and left the economy vulnerable to disasters and economic attacks from adversaries. USTR Tai’s speech was the clearest articulation yet of what the Biden administration calls a “worker-centered” trade policy, which seeks to reverse globalization’s so-called “race to the bottom,” where corporations seek out lower-wage, lower-regulation countries for manufacturing. It also comes on the heels of a similar address from National Security Adviser Sullivan in April, when he also assailed pro-globalization policies. According to Tai, the supply chain rules in free trade agreements reinforce fragile supply chains, which does not make sense at a time when the U.S. is trying to diversify to make them more resilient. The Biden administration will no longer pursue trade deals along those lines and will instead pursue a “fundamental shift” in how the government sets up incentives about what, where, and how goods are produced, and services are supplied. The aim is to encourage domestic manufacturing and more diversity in overseas suppliers. The question to ask is not does this maximally liberalize trade, but will policies promote resilience, sustainability, and inclusiveness in terms of economic outcomes. How exactly the Biden administration intends to deliver on these goals has so far not been articulated.
“Off the Record”
Third party candidate(s) are setting up to be major spoilers in 2024. In fact, the upcoming presidential campaign looks increasingly likely to feature a third-party candidate, with former President Trump and Sen. Joe Manchin (D-WV) at the top of the list of potentials. If Trump is not the Republican nominee, he is likely to run as an Independent, and if he is the Republican nominee, Manchin will likely enter the race. Manchin faces a strong Republican field in his Senate race and could see a presidential run as a smooth exit. Although the GOP is trying to quash the risk of a third party run by requiring candidates to pledge support for the eventual nominee as a precondition to participating in debates, Trump has suggested he does not plan to debate, and may feel unbound by any pledge. A centrist third party challenger would not win the election but could attract enough votes to sway the outcome.
In Other Words
“If even half of it is true, he’s toast,” Former Attorney General Barr on the allegations against former President Trump.
“There are 33 bathrooms at Mar-a-Lago. So don’t act like it’s just in some random bathroom that the guests can go into,” Rep. Donalds (R-FL) defending former President Trump’s handling of classified documents, which reportedly included storing some in bathrooms and other unused spaces at Mar-a-Lago.
Did You Know
Following its 10-0 win in 2022, the Republicans routed the Democrats 16-6 in Wednesday’s annual Congressional baseball Game at Nationals Park. The win was the GOP’s third straight.
Graph of the Week
Spurred by an active Congress, a record $4 Billion was spent on lobbying expenses in 2022. Continuing a multi-year streak and driven largely by the Inflation Reduction Act (IRA), bipartisan infrastructure bill, and CHIPS Act, lobbying spending in Washington reached a new high in 2022. In disclosures required by law, the advocacy industry collectively reported $4 billion in spending last year. The 2022 numbers continue a trend that has seen spending steadily climb since the election of 2016.