Impeachment proceedings against President Trump won’t affect corporate earnings, or stock and bond prices, directly. But the political war in Washington changes the outlook for some key policy issues that investors should pay close attention to.
Democrats and Republicans don’t cooperate very much these days, but the House’s effort to impeach Trump will raise the usual standoff to cold war levels. “The latest impeachment imbroglio is a negative catalyst for markets,” Beacon Research advised clients on Sept. 25. “While political gridlock is often good for markets by reducing the risk of government interference, dysfunctional paralysis of government is not because it increases uncertainty over the government’s ability to handle a crisis.”
Trump’s trade deal with Canada and Mexico—the USMCA—could be the first casualty of impeachment. Trump finalized a deal last year to replace the old North American Free Trade Agreement, but Congress must ratify it before it goes into effect. And that now seems unlikely. “Bipartisan action on … the passage of the USMCA (the new NAFTA) is dead until after the 2020 election,” writes Ed Mills of Raymond James.
RELATED: Take a look inside Nancy Pelosi's impeachment inquiry:
Donald Trump faces impeachment inquiry
Donald Trump faces impeachment inquiry
ARCHIVO - En esta foto de archivo del 30 de noviembre de 2018, la entonces embajadora de EEUU en Ucrania, Marie L. Yovanovitch, habla en Kiev. Yovanovich declara el viernes 11 de octubre de 2019 ante las comisiones del Congreso que investigan al presidente Donald Trump antes de posiblemente iniciarle juicio político. (AP Foto/Efrem Lukatsky)
Former U.S. ambassador to Ukraine Marie Yovanovitch, center, arrives on Capitol Hill, Friday, Oct. 11, 2019, in Washington, as she is scheduled to testify before congressional lawmakers on Friday as part of the House impeachment inquiry into President Donald Trump. (AP Photo/J. Scott Applewhite)
FILE - In this March 6, 2019 file photo, then U.S. Ambassador to Ukraine Marie Yovanovitch, center, sits during her meeting with Ukrainian President Petro Poroshenko in Kiev, Ukraine. (Mikhail Palinchak, Presidential Press Service Pool Photo via AP)
U.S. President Donald Trump speaks about the House impeachment investigation during a formal signing ceremony for the U.S.-Japan Trade Agreement at the White House in Washington, October 7, 2019. REUTERS/Kevin Lamarque
Adam Schiff (D-CA), Chairman of the House Select Committee on Intelligence Committee speaks to the media before a closed-door meeting regarding the ongoing impeachment inquiry against US President Donald Trump at the US Capitol October 8, 2019 in Washington,DC. (Photo by Olivier Douliery / AFP) (Photo by OLIVIER DOULIERY/AFP via Getty Images)
Democratic U.S. Rep. Ben McAdams, of Utah, addresses the media at Midvale Senior Citizens Center Friday, Oct. 4, 2019, in Midvale, Utah. McAdams is changing his position to support the impeachment inquiry into President Donald Trump. He said Friday he has not made a decision on whether the president should be impeached, but he supports investigating what he calls serious allegations. McAdams was previously one of a small handful of undecided House Democrats. He says he changed his mind because the Trump administration is unlikely to cooperate with an investigation unless it's conducted as an impeachment inquiry. (AP Photo/Rick Bowmer)
Staunch Trump ally Sen. Chuck Grassley pushes back against calls to out whistleblower
Speaker of the House Nancy Pelosi, D-Calif., listens as Rep. Joe Neguse, D-Colo., and other House Democrats discuss H.R. 1, the For the People Act, which passed in the House but is being held up in the Senate, at the Capitol in Washington, Friday, Sept. 27, 2019. (AP Photo/J. Scott Applewhite)
House Intelligence Committee Chairman Adam Schiff (D-CA) speaks to reporters after the Trump administration blocked U.S. ambassador to the European Union Gordon Sondland from giving testimony in the House of Representatives' impeachment investigation of Trump on Capitol Hill in Washington, U.S., October 8, 2019. REUTERS/Jonathan Ernst
WASHINGTON, DC - OCTOBER 01: Tourists make photographs inside the rotunda of the U.S. Capitol on October 01, 2019 in Washington, DC. Under the leadership of Speaker Nancy Pelosi (D-CA), the House of Representatives has opened an impeachment investigation of President Donald Trump following revelation that a whistleblower filed a complaint that Trump was seeking damaging information about a political opponent from Ukrainian President Volodymyr Zelensky. (Photo by Chip Somodevilla/Getty Images)
WASHINGTON, DC - SEPTEMBER 30 : President Donald J. Trump talks to reporters about the whistleblower after participating in a ceremonial Swearing-In of the Secretary of Labor Gene Scalia in the Oval Office at the White House on Monday, Sept 30, 2019 in Washington, DC. (Photo by Jabin Botsford/The Washington Post via Getty Images)
KIEV, UKRAINE - OCTOBER 01: Ukrainian President Volodymyr Zelensky speaks to the media on October 1, 2019 in Kiev, Ukraine. Ukraine has been at the core of a political storm in U.S. politics since the release of a whistleblower's complaint suggesting U.S. President Donald Trump, at the expense of U.S. foreign policy, pressured Ukraine to investigate Trump's rival, Joe Biden, and Biden's son, Hunter. (Photo by Sean Gallup/Getty Images)
(COMBO) This combination of pictures created on September 24, 2019 shows
US Speaker of the House Nancy Pelosi, Democrat of California, on September 24, 2019 and
US President Donald Trump in Washington, DC, September 20, 2019. - Amid mounting allegations of abuse of power by the US President, Pelosi announced the start of a formal impeachment inquiry in the House of Representatives, the first step in a process that could ultimately lead to Trump's removal from office. (Photos by Mandel NGAN and SAUL LOEB / AFP) (Photo credit should read MANDEL NGAN,SAUL LOEB/AFP/Getty Images)
House Speaker Nancy Pelosi of Calif., reads a statement announcing a formal impeachment inquiry into President Donald Trump, on Capitol Hill in Washington, Tuesday, Sept. 24, 2019. (AP Photo/Andrew Harnik)
House Speaker Nancy Pelosi of Calif., steps away from a podium after reading a statement announcing a formal impeachment inquiry into President Donald Trump, on Capitol Hill in Washington, Tuesday, Sept. 24, 2019. (AP Photo/Andrew Harnik)
U.S. President Donald Trump reacts to audience applause after his address to the 74th session of the United Nations General Assembly, Tuesday, Sept. 24, 2019. (AP Photo/Richard Drew)
U.S. President Donald Trump arrives to address the 74th session of the United Nations General Assembly at U.N. headquarters Tuesday, Sept. 24, 2019. (AP Photo/Mary Altaffer)
WASHINGTON, DC - September 24: Surrounded by journalists, Chairman of the House Intelligence Committee Adam Schiff (D-CA) emerges from a meeting with Speaker of the House Nancy Pelosi, before the delivers a speech concerning a formal impeachment inquiry into President Donald Trump, on Capitol Hill in Washington, DC on Tuesday September 24, 2019. (Photo by Melina Mara/The Washington Post via Getty Images)
Members of the White House press corps - holding in the Trump Bar at Trump Tower - watch U.S. House Speaker Nancy Pelosi (D-CA) live on television as she announces an impeachment investigation of U.S. President Donald Trump in New York City, New York, U.S. September 24, 2019. REUTERS/Jonathan Ernst
U.S. President Donald Trump ATTENDS a bilateral meeting with Iraq's President Barham Salih on the sidelines of the annual United Nations General Assembly in New York City, New York, U.S., September 24, 2019. REUTERS/Jonathan Ernst
Rep. Alexandria Ocasio-Cortez (D-NY) speaks to news reporters following an impeachment proceeding announcement, at the U.S. Capitol in Washington, U.S., September 24, 2019. REUTERS/Tom Brenner
U.S. House Intelligence Committee Chairman Adam Schiff (D-CA) walks through a House corridor following an Impeachment Proceeding announcement, at the U.S. Capitol in Washington, U.S., September 24, 2019. REUTERS/Tom Brenner
U.S. Rep. Debbie Wasserman Schultz (D-FL.) speaks to news reporters following an Impeachment Proceeding announcement, at the U.S. Capitol in Washington, U.S., September 24, 2019. REUTERS/Tom Brenner
THE TONIGHT SHOW STARRING JIMMY FALLON -- Episode 1125 -- Pictured: Host Jimmy Fallon as Donald Trump during the "Trump U.N. Speech" Cold Open on September 24, 2019 -- (Photo by: Andrew Lipovsky/NBC/NBCU Photo Bank via Getty Images)
Protesters with "Kremlin Annex" call to impeach President Donald Trump in Lafayette Square Park in front of the White House in Washington, Tuesday, Sept. 24, 2019. House Speaker Nancy Pelosi of Calif., announced a formal impeachment inquiry into President Donald Trump. (AP Photo/Carolyn Kaster)
WASHINGTON, DC - SEPTEMBER 24: U.S. House Minority Leader Rep. Kevin McCarthy (R-CA) speaks to the media in response to an announcement by Speaker of the House Rep. Nancy Pelosi (D-CA) at the Capitol Building September 24, 2019 in Washington, DC. Pelosi announced a formal impeachment inquiry today after allegations that President Donald Trump sought to pressure the president of Ukraine to investigate leading Democratic presidential contender, former Vice President Joe Biden and his son, which was the subject of a reported whistle-blower complaint that the Trump administration has withheld from Congress. (Photo by Alex Wong/Getty Images)
WASHINGTON, DC - SEPTEMBER 24: Rep. Abigail Spanberger (D-VA) walks with her press secretary, Connor Joseph, to a House Democratic caucus meeting at the U.S. Capitol where formal impeachment proceedings against U.S. President Donald Trump were announced by Speaker of the House Nancy Pelosi September 24, 2019 in Washington, DC. Spanberger is one of seven freshman members of the House with national intelligence or military backgrounds who recently spoke out in an opinion piece calling for an investigation of Trump. (Photo by Win McNamee/Getty Images)
WASHINGTON, DC - SEPTEMBER 24: Reporters and congressional staff members wait outside a House Democratic caucus meeting at the U.S. Capitol where formal impeachment proceedings against U.S. President Donald Trump were announced by Speaker of the House Nancy Pelosi September 24, 2019 in Washington, DC. Pelosi announced a formal impeachment inquiry after allegations that President Donald Trump sought to pressure the president of Ukraine to investigate leading Democratic presidential contender, former Vice President Joe Biden and his son, which was the subject of a reported whistle-blower complaint that the Trump administration has withheld from Congress. (Photo by Win McNamee/Getty Images)
UNITED STATES - SEPTEMBER 24: Reporters crowd around Rep. Jamie Raskin, D-Md., as he leaves the House Democrats caucus meeting in the Capitol on impeachment of President Trump on Tuesday, Sept. 24, 2019. (Photo By Bill Clark/CQ-Roll Call, Inc via Getty Images)
UNITED STATES - SEPTEMBER 24: Rep. Al Green, D-Texas, arrives for the House Democrats caucus meeting in the Capitol on impeachment of President Trump on Tuesday, Sept. 24, 2019. (Photo By Bill Clark/CQ-Roll Call, Inc via Getty Images)
Protesters with Kremlin Annex with a light sign that reads "NO ONE IS ABOVE THE LAW" call to impeach President Donald Trump in Lafayette Square Park in front of the White House in Washington, Thursday, Sept. 26, 2019. (AP Photo/Carolyn Kaster)
Discover More Like This
BACK TO SLIDE
The next question is whether Trump withdraws the United States from NAFTA, as he has threatened to do, or remains in the old NAFTA. Watch out below. “We think that the political one-upmanship between President Trump and Speaker Pelosi could culminate in a series of decisions that ultimately leave the United States without any North American free trade agreement,” writes Stefanie Miller of Sandhill Strategies.
This could be tumultuous. Tariffs or other new barriers to trade among the three nations could damage the auto industry, which dominates trade between the United States and Mexico. U.S. farmers could be hurt, too, since much American produce goes to Mexico. It would be self-defeating for Trump to blow up NAFTA and harm the U.S. economy as he’s vying for reelection. As the whole world knows, however, Trump can be contrary and unpredictable.
Negotiations with China
Impeachment will affect Trump’s trade negotiations with China as well. On one hand, Trump will become more desperate for some kind of deal he can point to as a win, while also eliminating the economic harm the trade war is causing. Some analysts think that could lead to a mini-deal that doesn’t accomplish much but deescalates the situation, which would cheer markets.
But that could only happen if China went along. President Xi Jinping might choose instead to wait Trump out and see whether he survives impeachment. The battle with Democrats weakens Trump’s hand with China, because he’s fighting a rear-guard action on his home turf while also taking on China. Trump’s reelection odds are already weak, given his low approval ratings, so China might just wait for the election. And we’ve already seen that a spurned Trump can ratchet up the trade war without notice. It’s hard to predict whether impeachment will intensify or ease the trade war with China. But it probably moves one way or the other instead of drifting along in its current state.
Political combat between Democrats and Republicans probably raises the odds of a government shutdown later this year, as spending bills expire. President Trump may speed up his plan to lower prescription drug prices, to distract from negative news on impeachment. That plan would only be an administrative action, though, making it subject to legal and logistical challenges, like other Trump orders.
The biggest unknown is whether impeachment will hurt or help Trump, which carries implications for who the next president is likely to be. The Republican impeachment of Bill Clinton in 1998 boosted his approval ratings into the 60-percent range, because Americans thought it was a politically motivated, well, witch hunt. Trump undoubtedly hopes impeachment does the same for him. A lot may come down to how he responds.