Happy Tuesday! This is our last newsletter for the week,
so we’ll take this opportunity to wish you all a happy
Thanksgiving. As always, we’re thankful for your continued
readership, feedback, questions and suggestions. We hope you have a
joyous holiday season!
Here’s what’s happening today.
Trump Promises Immediate New Tariffs on Mexico, Canada and
China
President-elect Donald Trump promised Monday evening that on his
first day in office he will slap a 25% tariff on all goods imported
from Canada and Mexico — the top two U.S. trading partners — and
will impose an additional 10% tariff on products from China. Trump
said those tariffs would stay in place unless and until those
countries control the flow of illegal drugs, particularly fentanyl,
and of “all Illegal Aliens” into the country.
“Both Mexico and Canada have the absolute right and power to
easily solve this long simmering problem,” Trump wrote in a social
media
post. “We hereby demand that they use this power,
and until such time that they do, it is time for them to pay a very
big price!”
Trump has promised a tough new trade policy that he says will
reinvigorate American manufacturing, improve terms with U.S.
trading partners and compel companies to bring jobs back to the
country. He may be issuing these threats as a negotiating tactic,
but he has also repeatedly claimed that China and other countries
will bear the burden of his planned tariffs, even as most economist
warn that those costs will ultimately fall on
American consumers and drive inflation higher.
Trump’s tariff plan also invites retaliation from those key
trading partners and threatens to ignite a new trade war that would
undercut the United States-Mexico-Canada Agreement, or USMCA,
signed during Trump’s first term. Tariffs would violate the terms
of that deal.
Mexico is the United States’ top trading partner, accounting for
nearly 16% of total trade as of September,
Reuters reports. Canada is second, at just under
14%.
“Stiff new tariffs on imports from the US’s three largest
trading partners would significantly increase costs and disrupt
business across all economies involved,” Erica York, senior
economist at the business-friendly Tax Foundation think-tank, told
the
Financial Times. “Even the threat of tariffs can have a
chilling effect.”
The Tax Foundation estimates
that Trump’s tariffs, if imposed permanently, would generate $1.2
trillion in revenue over a decade — but would reduce GDP by 0.4
percent and cost nearly 345,000 jobs. Those estimates do not
include any effects of foreign retaliation or the additional impact
of a global trade war.
Already, China and Mexico have fired back at Trump’s
comments.
“China-US economic and trade cooperation is mutually beneficial
in nature. No one will win a trade war or a #tariff war,” Liu
Pengyu, a spokesperson for the Chinese Embassy in the U.S., said in
a post on X.
And President Claudia Sheinbaum of Mexico indicated on Tuesday
that she wouldn’t shy away from a clash and warned that the
economic consequences for both countries could be severe. “The
response to one tariff will be another, until we put at risk
companies that we share – yes, that we share," Sheinbaum
said at a press conference, reading aloud from a
letter she planned to send to Trump. She added that tariffs would
hurt U.S. automakers and lead to inflation and job losses in both
countries.
She also said that migrant encounters at the U.S.-Mexico border
are down sharply since December and called for cooperation in
addressing the issue and the factors that drive families to try to
enter the United States. “If a percentage of what the United States
allocates to war is dedicated to peacebuilding and development, the
mobility of people will be fundamentally addressed,” she said. And
she called the drug problem a public health issue for the United
States to address.
Her remarks suggest a tougher stance than Trump encountered in
his first term. “We negotiate as equals, there is no subordination
here, because we are a great nation,” Sheinbaum said, adding that
she believes an agreement will be reached.
Why it matters: “Trump’s market-moving threats were a
stark reminder that he plans to wield tariff authority, or at least
threaten to use it, as leverage against allies and adversaries
alike,” Bloomberg’s Nancy Cook and Brian Platt
write. “It’s another sign of his break from the
international order where low tariffs are the goal and rules exist
to discourage overreach of punitive trade actions.”
Voters who elected Trump to address the cost of living are
likely to wind up
paying the price.
IRS Faces a Surprise $20 Billion Funding Hole
The Treasury Department is warning that $20 billion for Internal
Revenue Service enforcement efforts is effectively frozen as the
result of legislative language used in the stopgap law passed to
fund federal agencies through December 20.
In 2022, Democrats provided the IRS with a funding boost of $80
billion over a decade on top of the agency’s annual budget — money
that was to be used to ramp up enforcement, modernize technology
and improve taxpayer service. Republicans waged a brutal campaign
against the stepped-up enforcement, and they succeeded in getting
the Biden administration to agree to redirect $20 billion toward
other programs.
The current freeze affects an additional $20 billion in IRS
enforcement funding. It’s the result of the latest stopgap
legislation, passed in late September, to keep the government
running until just before the end of the year. As The Wall Street
Journal’s Richard Rubin
explains, “that legislation kept the prior year’s
language, effectively repeating the $20 billion enforcement cut.
Congressional Republicans told the industry publication Tax Notes
that this was part of an intentional strategy and that they tried
not to call attention to it before it kicked in.”
The Biden administration is looking to address the problem and
unfreeze the funding in the next spending bill. “The IRS is going
to potentially have to make dramatic decisions about stopping
hiring and starting to budget for a world which they don’t have $20
billion, which will stop a lot of their progress,” Deputy Treasury
Secretary Wally Adeyemo told reporters. “If they don’t get that $20
billion that is at risk, they would run out of enforcement money at
the current pace sometime in fiscal year 2025.”
That would mean 6,000 fewer audits of top-earning individuals
and 2,000 fewer audits of large corporations, Adeyemo
said. The decreased enforcement would result in an
increase in the deficit of $140 billion, he said.
The bottom line: The issue could prove to be a point of
contention in upcoming talks to fund the government beyond the
December 20 shutdown deadline, though Republicans are also set to
have more control over IRS funding — and seek severe cuts — as they
take over both chambers of Congress and the White House next
year.
Send your feedback to yrosenberg@thefiscaltimes.com.
Fiscal News Roundup
Donald Trump Says He Will Hit China, Canada and Mexico With New
Tariffs – Financial Times
Mexico's President Warns Trump's Tariffs Will Worsen US
Inflation, Kill Jobs – USA Today
'Counter to Facts and Reality': China, Mexico, Canada Respond
to Trump Tariff Threats – USA Today
Trump Expected to Name Kevin Hassett to Lead National
Economic Council – Politico
Trump Team Eyes Quick Rollback of Biden Student Debt
Relief – Politico
Ramaswamy Threatens DOGE Review of Biden’s Microchip Funding
Spree – Politico
IRS Enforcement Money Has Unexpected $20 Billion
Hole – Wall Street Journal
IRS Hiring Freeze Looms if Congress Doesn’t Fix $20B Budget
Anomaly, Treasury Warns – Federal News Network
Biden Proposes Medicare and Medicaid Cover Costly Weight-Loss
Drugs for Millions of Obese Americans – Associated
Press
Trump Team Eyes Funding Showdown With Sanctuary Cities Over
Immigration – Washington Post
Biden Administration to Loan $6.6B to EV Maker Rivian to
Build Georgia Factory That Automaker Paused – Associated
Press
Musk Targets Trump’s Favorite Fighter Jet –
Politico
US Membership in the World Health Organization Is on the Line
With Trump’s Return – Politico
Views and Analysis
Trump’s Threat to Impose Tariffs Could Raise Prices for
Consumers, Colliding With Promise for Relief – Tom
Krisher and Christopher Rugaber, Associated Press
Trump’s Tariffs on Mexico and Canada Won’t Reduce Grocery
Prices – Catherine Rampell, Washington Post
Trump’s Tariff Plan Makes Little Sense – Peter
Coy, New York Times
Trump's Tariff Plan Could Raise Prices, Blow Up His Own Trade
Deal With Mexico and Canada – Selina Wang and Karen
Travers, ABC News
GM and Other US Automakers Would Take Big Hit From Trump
Tariffs – Cassandra Garrison, David Shepardson and Ben
Klayman, Reuters
Would Bernie Have Won? – Ezra Klein, New York
Times
Reversing Biden Executive Actions Could Save up to $1.4
Trillion – Committee for a Responsible Federal
Budget
I Ran Operation Warp Speed. I’m Concerned About Bird
Flu. – David A. Kessler, New York Times
Trump’s Evasion of January 6 Accountability Will Echo for
Next Four Years and Generations to Come – Stephen
Collinson, CNN