Guardrails

Source: Bloomberg; Getty Images

  By Guest Blogger Doug Rowat

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The now famous bug-eyed stare from White House Chief of Staff Susie Wiles after Trump announced that the US would “own” Gaza, probably reflects how many of us are reacting these days to Trump’s new policies.

And these policies certainly beg the question: are there any guardrails that will impede Trump’s plans to remake America and its relationship to the rest of the world?

Given the Republican control of both the Senate and the House, the right-wing majority in the Supreme Court and the intense reluctance of any elected Republican to challenge Trump’s ideology, there isn’t much that will hinder his agenda. However, he faces a few potential stumbling blocks.

Federal judges. Biden did actually manage to appoint 235 federal judges, one more than Trump did during his first term as president. But regardless of whether they’re Republican or Democrat appointments, federal judges don’t seem to have much sympathy for Trump’s legal machinations. Trump’s campaign to upend the 2020 election results, for example, went nowhere in the court system. We’re also now on the third federal judge that has rejected his attempts to end birthright citizenship. The first judge, a Republican appointment, called the attempt “blatantly unconstitutional”. There will be ups and downs in rulings, of course, but overall, federal judges will likely delay Trump’s legal progress.

Democrat governors. Governors hold powerful political positions as governors control state spending and can also appoint state-level officials, including judges. There are currently 23 states with Democratic governors, less than the number of Republican governors, but the Democrats control some economically powerful states including California, New York, Michigan, Pennsylvania, Illinois, Arizona and Colorado. These governors often work in a loosely coordinated way and this could hinder Trump’s economic and social agenda.

The press. Naturally, Trump favours the right-wing media hence why he removed four major news outlets from the Pentagon and installed Breitbart News and One America News instead. He’s also not reluctant to sue news outlets, just ask ABC News. However, thus far at least, reporters haven’t been arrested or jailed. I personally think that Trump actually thrives on media attention regardless of its source, and particularly enjoys trying to discredit left-leaning media outlets, which, of course, appeals to his base.

US mid-term elections. These are slated for November 2026 and could tip the balance of Congressional power. Republicans have the slimmest of majorities in the House, for instance, and the president’s party almost always loses House seats during the mid-terms—since 1948, which encompasses 20 mid-term elections, the president’s party has averaged a loss of 25 seats in the House. Obviously, November 2026 is far off, but a rout in the mid-terms, or even just modest losses, would further slow Trump’s agenda.

The US Federal Reserve. The Fed works independently from the president and Fed Chair Jerome Powell has stated that he intends to finish his term, which ends in May 2026. Trump could attempt to fire Powell earlier, but this would face significant legal obstacles. Regardless, May 2026 marks only the end of Powell’s term as chair; his term on the board lasts until 2028. An independent Fed eliminates Trump’s ability to tamper with the US economy through interest-rate policy. And, as we’ve all learned with Trump’s tariff policies, he holds odd views about what’s best for the US economy. Further, only two of the seven voting Fed board members have terms that expire during Trump’s presidency. In other words, Trump’s ability to meaningfully affect the Fed’s independence is limited. Of note, strategists at BNP Paribas recently stated that damaged confidence in the Fed’s independence could result in a “pivot away from the U.S. dollar as the global reserve currency, and with that, large-scale U.S. asset sales.” Which brings me to my final point.

The stock market itself. Trump is highly attuned to Wall Street opinion and the performance of the stock market. This was true during his first term (when markets performed spectacularly—14.3% annual gains for the S&P 500), but also during the most recent election campaign when he bristled at reporters’ questions on the strength of markets under Biden. His appointment of the well-respected Scott Bessent for Treasury Secretary also indicates how he courts the favour of Wall Street.

Is it a coincidence that just days after The Wall Street Journal called his planned 25% tariffs against Canada and Mexico “The Dumbest Trade War in History”, and with markets tanking when he actually made the tariffs official, that he almost instantly delayed them? Only time will tell, of course, but the timing was interesting. Goldman Sachs estimates that S&P 500 earnings will decline by 1-2% for every 5-percentage point increase in the US tariff rate. S&P 500 companies, btw, derive almost 30% of their revenues from outside the US. How long will the stock market hold up if corporate earnings and revenue actually begin to decline because of tariffs?

Trump supporters will point out, quite correctly, that all of the above provides limited protection, and some of the guardrails are, at best, only speculative (a declining stock market moderating Trump’s behaviour, for instance). However, his opponents will argue that some checks and balances are better than none. But regardless, the guardrails, collectively, will almost certainly slow his agenda.

However, the best way for investors to prepare for more Trump uncertainty? You guessed it. Maintain balanced and diversified GLOBAL portfolios.

Apparently, it’s Trump against the world at the moment and it’s impossible to tell who’ll win.

But by maintaining a portfolio that has US, Canadian and international exposure, you don’t have to pick sides.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/02/14/guardrails/