- Tariff confusion continues with electronics
- Can China and U.S. find common ground?
- House and Senate out for two weeks
- Reconciliation process to begin
Tariffs and the policies of President Donald Trump continue to dominate the headlines. On Friday, Bloomberg News reported that the Trump administration exempted “smartphones, computers, and other electronics from its so-called reciprocal tariffs, potentially cushioning consumers from sticker shock.”
During the Sunday talk shows, Commerce Secretary Howard Lutnick said that the pause for these products is only temporary, and they will be part of the larger trade talks between the U.S. and its trading partners. On Sunday night, Trump said there will be new tariffs on semiconductors in the coming days and referred to the computer, smartphone and other electronics exemption as a “reprieve”.
As someone who both worked on Capitol Hill and was head of government relations for a major bank, I am impressed with the lobbying success of tech leaders. Many attended the president’s inauguration, and with the latest news, it looks like the time was well spent. But the back and forth on policy makes determining winners and losers tough.
The White House has stated that several of the more than 70 nations that have approached the government to start trade talks are approaching deals, but at this point it is not clear when the first agreement will be announced.
The reported talks and exemptions for tech follow a week of different signals from the Trump administration that included a 90-day pause for most tariffs but a dramatic increase in the level of tariffs for China. At this point, there have been no announced direct communications between Washington and Beijing, but Trump and Chinese President Xi Jinping have had a good personal relationship. In fact, Xi has been a guest of the U.S. president at his Mar-a-Lago residence. Trump has a great deal of confidence in his interpersonal skills, and direct talks between the leaders may be part of the administration strategy. But again, the level of confusion was increased with reports over the weekend that China may be limiting the exports of rare earth minerals and other important materials that U.S. companies use.
Congress goes home
Last week, Congress gave final approval to the Budget Resolution, which is the blueprint Congress needs to begin the Budget Reconciliation process. Budget Reconciliation is one of the few legislative tools Congress can use to make changes in spending and revenue and avoid the risk of a Senate filibuster. Most issues can be subject to extended debate, a filibuster, that can kill legislation without a vote to stop debate. This vote, which is called cloture, requires 60 votes. Obviously, with only 53 Republican Senators it is the rare issue where Republicans can attract seven Democratic votes. Hence, reconciliation is the vehicle that Republicans can use to pass much of the Trump administration agenda.
While the blueprint has passed, there remain substantial differences between the House and Senate. The principal difference is on budget cuts. The most conservative House Republicans are looking for at least $1.5 trillion in cuts, while the Senate target has been in the billions of dollars.
The Trump agenda includes more money for border protection and for capturing illegal immigrants, making new drilling easier to accomplish, more money for defense, and perhaps most importantly, extending the 2017 Trump tax cuts that expire at year-end.
Another potentially huge issue is the need for the government to increase the debt ceiling that governs the debt outstanding that Treasury can issue. This has been a tough vote going back to the time years ago when I worked on Capitol Hill. There are some very conservative Republicans who have never voted to increase the debt ceiling. These members are deficit hawks and have a difficult time justifying a vote to increase the debt ceiling. As the Republicans are operating with a very narrow majority, and Democrats are unlikely to provide any votes to increase the debt ceiling, the president and House leadership will need to persuade these fiscal hawks to vote for a debt ceiling increase. This is the central issue pushing the House leaders to get at least $1.5 trillion in cuts and secure the votes of nearly all Republicans in the House.
In Washington, the date when the debt ceiling is reached is referred to as the X date, and while the X date has not been official, established budget experts believe it could be as early as this summer. Much will depend on the amount of revenue that comes into the Treasury during the current tax season.
Obviously, a default on government debt is an unacceptable policy and Trump wants to get this issue off the table. The Senate version of the Reconciliation Bill includes a $5 trillion increase in the debt ceiling, which experts believe is a big enough increase to get the government past the 2026 elections.
