- Administration reaches trade deal with China
- President Donald Trump heads to Middle East
- Treasury issues letter on debt ceiling
- House tees up Reconciliation package
- SALT and Medicaid under review
Over the weekend, Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer met with representatives of China in Switzerland. It may be a sign of evolving policy at the White House that trade hawkish counselor Peter Navarro was not in the U.S. delegation that met with Chinese officials. The secretary on Monday morning announced the broad outline of the deal, which is a 90-day pause with much lower tariff rates.
Under the deal, the U.S. will reduce the 145% tariff on Chinese goods to 30%, and China will reduce its 125% tariff on U.S. goods to 10%. Further talks will proceed during the 90-day cooling-off period, and both sides agreed that tensions will be reduced.
Also, on the international front, President Donald Trump leaves on a trip to the Middle East, where he will meet with leaders of Saudi Arabia, Qatar, and the United Arab Emirates. Though the president will be in the region, he isn’t set to stop in Israel. Hopes for a ceasefire increased when it was announced that a deal was made for the release of the last living American hostage by Hamas.
Debt Ceiling
Prior to heading to Switzerland for talks with China over trade, Bessent released a letter he sent to the Congressional Leadership telling them that the best estimate that the Treasury Department can make with respect to the debt ceiling is that it will be reached in August. Due to the traditional August Congressional recess, the secretary urged Congress to either suspend or raise the ceiling in July, prior to the August recess.
Here is the bottom line from the secretary’s letter:
“A failure to suspend or increase the debt limit would wreak havoc on our financial system and diminish America’s security and global leadership position.”
Click here for a link to the full letter.
The debt ceiling has always been a tough vote for Republicans. For Members who campaign against the exploding U.S. debt, explaining a vote to raise the debt ceiling can be a tough sell. This year, the White House and Congressional Republican leaders know that Senator Chuck Schumer and House Minority Leader Hakeem Jeffries will exact a high price for Democratic support ─ which is why they want to suspend or increase the ceiling in the Republican only Reconciliation Bill that Congress is now working on. With only a six-seat majority, the leadership can’t give the usual pass to the conservative members, who in the past have voted no on the debt ceiling.
Reconciliation
The Republican House leadership has announced that the key committees will start working on the Budget Reconciliation Bill with the hope of getting a bill to the House floor next week prior to the Memorial Day break. This seems like a tall order, and there are many skeptics who wonder if this is a realistic goal.
There are two large problems that have not been resolved. First is the need to increase the deductible level of state and local taxes (SALT), and second is the dispute on how much to cut Medicaid. Representatives from high tax states have threatened to vote against the entire Reconciliation package if the SALT limit is not increased.
Last week, they left a meeting with the speaker saying that a deal has not been reached. Several of the Republicans from the high tax states are considering moving to higher office such as governor or senator and believe the SALT issue could be a deal breaker if they don’t lead the effort for a significant increase. Congress must find revenue offsets to renew the Trump tax cuts expiring at year-end, and raising the SALT deduction increases costs instead of reducing them.
Similarly, the need to raise money is at the center of the fight over cutting Medicaid. Moderate Republicans in Medicaid-heavy districts hesitate to make significant cuts to the program. These members are unwilling to vote to strip medical coverage from constituents that rely on Medicaid for basic care. However, some conservatives, led by Freedom Caucus members, want to cut over $1 trillion from Medicaid and use these savings to offset the revenue loss of either extending the Trump tax cuts or making them permanent.
The Reconciliation package also needs to raise money to help pay for the cost increases for Defense and border security. In addition to these spending and revenue programs, the Reconciliation Bill will also expand drilling for energy on federal lands. The entire package is core to the president’s agenda, and at the end of the day the deadlock among Republicans will likely require the personal intervention of Trump.