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Biden Tacks to the Center?

More than a year into the Biden Administration, Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), Republican resistance, and “walk the plank” votes that frustrated some within the Democratic Party have forced President Joe Biden to move to the center. But is it too late to save the Democrats from a midterm debacle? Count us at Hedgeye Potomac Research skeptical at this juncture, although a few scant signs of hope have emerged for the Democrats.    

Key wins in the Georgia Senate runoffs last January emboldened progressive Democrats, forcing party leadership to reconcile those priorities with the views of more moderate members. This tension has created an ongoing challenge for Democratic leadership and has hindered the ability of Biden to enact much of his agenda to date. Progressives forced Biden further to the left, leaving Democrats in an embattled position. Ironically, if the Republicans had held the Senate, Biden probably would have governed like the president that independent voters hoped he would be. That’s not to say Sen. Mitch McConnell (R-KY) would be rowing in the same direction as the president, but it would’ve forced his right hand.

The wind has been knocked out of Biden’s agenda on Capitol Hill, impacting everything from more partisan issues such as budget and tax policy to bipartisan legislation aimed at competition with China, as well as Russian sanctions. 

A Republican House majority would severely limit the prospects for enactment for much of the progressive agenda, including tax hikes and legislation that’s less business-friendly.

 

Legislative Logjam Will Shift to Regulatory Activity
While a flurry of activity on Capitol Hill is expected after Biden’s State of the Union Address, we expect the crisis in Ukraine will weigh heavily on the legislative process, and it could come to a grinding halt sometime in the second quarter. This leads us to where we see a sizable portion of the action taking place for the remainder of the year: the regulatory agencies, with a target on Big Tech coupled with antitrust policy. 

 

Headwinds for Dominant Tech Platforms
Big Tech antitrust and competition policy battles will likely pick up this year, particularly when the Democrats finally have a 3-2 majority on the Federal Trade Commission (FTC). Lawmakers on Capitol Hill will continue to make plenty of noise about the perils of Big Tech, but the more tangible threat to Alphabet (Google), Meta (Facebook), Amazon, and Apple probably emerges from the bureaucratic trenches.

The FTC is now split evenly along party lines, but Biden’s pick for the fifth seat (and third Democrat) on the FTC awaits Senate confirmation. The Senate is split on this nominee (Prof. Alvaro Bedoya), but we think he will probably squeak past Republican opposition and win final confirmation, perhaps with Vice President Kamala Harris breaking a tie vote. If not, the White House has some more work to do if it wants the FTC to fulfill Biden’s competition policy agenda.

The president highlighted two FTC tech-policy priorities in a recent executive order that calls for more aggressive competition-policy enforcement and implementation throughout the federal government. Yes, the FTC is technically an independent agency, but the majority members will likely push a partisan agenda in service to the president that put them in office.

In the executive order, the president requested that the FTC adopt regulations addressing “unfair data collection and surveillance practices” and “unfair competition in major Internet marketplaces.” We’ll see what the FTC ultimately proposes, but the agenda appears to threaten data collection on users to support targeted digital advertising models (Facebook and Google) and Amazon’s treatment of third-party sellers. We have long doubted the power of the FTC to adopt rules to define “unfair” competitive practices, but the new FTC Chair, Lina Khan, appears committed to testing the agency’s legal limits so a fight over upcoming tech regulatory proposals seems likely.

Democrats want to limit the economic power of tech platforms, while Republicans want to limit their power to censor conservative political viewpoints. 

 

Congressional Conundrum

Congress is also debating legislation that would rein in the tech platforms, but they’re struggling to limit their focus to a vehicle that can win a consensus for passage. There may be bipartisan interest here, but beneath the surface, Democrats and Republicans have different priorities. Democrats want to limit the economic power of tech platforms, while Republicans want to limit the power of tech platforms to censor conservative political viewpoints.

Even if lawmakers can settle on a piece of legislation to push forward in both the House and Senate, time is running short with the aforementioned midterm elections only eight short months away and other priorities driving congressional leaders. 

 

Regulations May Be On the Horizon, but Courts May Hold The Cards 

In the months ahead, here’s our basic sense about the political and regulatory threats against Big Tech. Despite rising anxiety about algorithmic abuse and platform walled gardens, Congress will likely fall short in passing anything of major significance affecting antitrust risk to Big Tech. Major well-publicized court cases will move forward against Alphabet (Google) and Meta (Facebook), but trials remain a long way off.  

The real fight will take place at the FTC when the Commission has a Democratic majority in place to pursue an aggressive agenda against Big Tech. The Commission’s Democratic leadership has already taken steps to free the agency from previous policies that would otherwise contain the impact of potential measures. 

Proposed rules, however, cannot be adopted overnight. It takes at least several months to launch a proposal, take industry and consumer input, and finalize a set of regulations. Court challenges would follow, and our bet, at this point, is that the FTC will ultimately fail in its efforts to convince appellate courts and/or the US Supreme Court that it has the rulemaking power it asserts. The recent Supreme Court decision invalidating OSHA’s vaccine mandate for large employers reinforces our view that the federal judiciary will be more steadfast concerning bureaucratic influence. Thus, it’s possible that any market weakness stemming from the actions of a zealous FTC may prove to be opportunities for patient investors with strong stomachs. 

Policy and political winds in Washington favor certain tech and telecom platforms as lawmakers focus on sustainable supply chains insulated from geopolitical risks. Long-term policy trends could boost companies positioned on the right side of major legislative and regulatory outcomes.

Talk to your financial professional to make sure your portfolio is prepared for whatever happens in Washington D.C. 

 

Investing involves risk, including the possible loss of principal. 

The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. Hedgeye Potomac Research is not an affiliate or subsidiary of Hartford Funds.

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About The Author
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Senior Policy Analyst, Hedgeye Potomac Research

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