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We wrote regularly last year about the potential breakup of the Republican Party, but that seemed moot after Donald Trump’s stunning upset. Surely Trump would unify a party looking for leadership — but it hasn’t happened, and now there are three distinct Republican factions, with major implications for policy.

1) THE CHAMBER OF COMMERCE FACTION: Paul Ryan is admired by Republicans who like free trade, business tax breaks and entitlement reform — but he’s loathed by the hard-core GOP base, which dismisses his “Obamacare lite” proposal.

The Breitbart alt-right regularly mocks him, as do many party activists. Once considered the party’s rising star, a good-guy brainiac and future president, Ryan and his faction are headed under the bus if the Obamacare replacement dies.

2) THE TEA PARTY REBELS: They made John Boehner’s life a living hell, and now they’re after Ryan. They don’t want federally subsidized health care, period. Many in the base love them, but at some point these House rebels have a responsibility to govern — and if you think they’re obstructionist now, just wait until the looming debt ceiling fight, which begins today. Default on federal debt? They’d love to!!

3) THE STEVE BANNON POPULISTS: This is the newest and most intriguing faction — fiercely populist and devoted to the white blue-collar workers that Hillary Clinton ignored. This faction hates free trade, doesn’t care much about the deficit, and wants to spend on highways, defense, job training, etc. This faction has no stomach for Ryan, to put it mildly, because he would curb entitlements and they would like to expand them.

Then there are the stumbling, predictable Democrats, still without much of a strategy other than obstructing. Democrats would like to work with Trump on infrastructure — and they don’t have a major beef with Supreme Court nominee Neil Gorsuch, who is headed for confirmation. This infuriates the Democrats’ base, which wants red meat and already is dreaming about Elizabeth Warren.

This bizarre mix needs a dynamic leader, and there’s one in the White House. But aside from one excellent speech to Congress, Trump has seemed tentative. He’s the greatest self-promoter in the history of American politics, but it’s starting to look like he cannot grasp the intricacies of policies like health reform, and he has a staff that has ties to all three GOP factions, which gives the impression that no one is in charge.

The markets have to pay attention because Trump may have picked the wrong horse (Ryan) on health reform, and he’s losing allies — not just John McCain and Lindsey Graham, they were gone from the get-go. But when Trump starts losing respected Senators like Rob Portman, that’s a big deal; it does not bode well for other legislative priorities.

Is this just a rough patch for the Republicans, or is this a party that’s incapable of governing and compromising? Trump has to step up and take charge — and as usual he may have to change the subject: Somali pirates, Iranian speedboats, or Kim Jong Un?

Valliere is the Washington-based chief global strategist with Horizon Investments.

Email: editors@barrons.com

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