A guide to US government



A guide to US government

As the US headed to the polls on 8 November 2016, markets were expecting a Hillary Clinton (Democrat) victory. Instead, on 9 November, Donald Trump (Republican) was elected to serve as the 45th US President of the United States. A Hillary Clinton presidency would have delivered slightly more predictability due to her lengthy political track record, and was viewed as the more likely outcome by various polling and statistical models in the run-up to the election. Donald Trump's campaign, on the other hand, leaves us with a few more questions on key issues, such as tax reform, trade negotiations and infrastructure spending. This election also decided members of Congress, governors and state legislators. It is important to remember the US government is made up of three branches with different functions and viewpoints, providing “checks and balances.”


    The US government has three branches, with each branch given overlapping responsibilities to make sure that no single part of the government is too powerful. This means that one branch cannot individually make any changes. The US Congress creates and passes laws, the president signs or vetoes them and the Supreme Court is the ultimate authority on the laws. In this bulletin, we explain how these three branches form the US government.

    1) President (executive branch)

    In a presidential system, the entire population votes for their choice of president and the vice president, as well as their local representatives in Congress. This is in contrast to the UK, where we directly vote for individual MPs, with the leader of the most popular party becoming prime minister. This means that it is entirely possible that an American voter could vote for a president from one political party and a member of Congress from another.

    The system that elects the president is unique to the US and it’s not just a matter of getting the highest total number of votes across the nation. Instead, a candidate needs 270 votes of the electoral college to win the presidency. The electoral college is a group of representatives that vote on behalf of the populations in each state. If a candidate wins the general election in a state, they will receive all of the electoral college votes of that state.1

    The map shows the breakdown of the electoral college and each state’s votes in the 2016 election. In the run-up to presidential elections, the focus is often on swing states. These states are historically divided and often do not have an overwhelming majority for a specific party, so they are crucial for candidates to win the 270 electoral votes. This year, key swing states included Ohio, Nevada, North Carolina, Florida and Pennsylvania, to name a few.

    Breakdown of the electoral college and vote result in 2016 election

    Source: CNN.com, J.P. Morgan Asset Management; data as of 11 November 2016. *Undeclared as of 11:30 GMT, 11 November 2016. **Maine splits electoral votes.

    2) Congress (legislative branch)

    Congress is made up of the Senate (or upper house, similar to the House of Lords) and House of Representatives (or lower house, similar to the House of Commons). Both houses operate separately and vote on proposed laws independently of each other. Congress has often been a buffer between the president’s campaign promises and the economy. There are areas of policy - especially relating to security and foreign affairs - where the president has some freedom to change policy without Congress. But broadly speaking, anything that involves spending or raising money requires approval from Congress. The president does present a proposed budget to Congress every year, but it has little chance of being enacted in a recognisable form if either-or both-houses of Congress are in the control of the other party.


    100 seats, two senators from each state, six-year term. One-third of the seats were up for election in November. The two senators representing a state can either be one from each party, or both from the same party, depending on the way that each state votes. The 2016 result is a Republican majority.

    Source: US House of Representatives, US Senate, J.P. Morgan Asset Management; data as of 11 November 2016. *Undeclared as of 11:30 GMT, 11 November 2016.

    House of Representatives:

    435 seats, two-year term. Each US state is represented in the House in proportion to its population as measured in the census, but every state is entitled to at least one representative. There are 435 seats in total, with 239 Republican and 193 Democratic seats confirmed in 2016.

    Source: US House of Representatives, US Senate, J.P. Morgan Asset Management; data as of 11 November 2016. *Undeclared as of 11:30 GMT, 11 November 2016.

    3) Supreme Court (judicial branch)

    The highest federal court in the US is made up of nine judges nominated by the president and confirmed by the Senate. They are the final interpreters of constitutional law. The nine judges serve for life, which can give them a longer-lasting influence over the way US laws are interpreted compared to any single president. When a position becomes vacant, a sitting president will usually appoint someone from his or her own political party, and confirming that person in the Senate can be a heated - and deeply partisan - affair. There is currently one vacancy, and the current make-up of the court means that there could possibly be two or three during the next president’s term.

    Keep in mind

    There is no obvious lesson from the past when it comes to presidents and the economy or equity markets: It is human nature to look for patterns in data. When it comes to the election, investors can ask which party or combination of leadership has historically been best for the markets. In truth, we strongly encourage investors to ignore such analysis! The research in our previously released Market Bulletin4 clearly shows that fundamentals – including valuations, interest rates and the economic cycle – have been the far more important drivers of asset prices.

    1There are two small states in which the electors vote representing the population’s breakdown – Maine and Nebraska.

    2An election of extremes-but a government of moderation, Andrew Goldberg & Hannah Anderson, J.P. Morgan Asset Management, September 2016.

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