Trump, Republicans Face 3 Big Tests This Week

ZUMA Press Wire via Reuters Connect
ZUMA Press Wire via Reuters Connect
By Yuval Rosenberg and Michael Rainey

Happy Monday! We're just a couple of days away from what President Donald Trump has dubbed "Liberation Day" - the day he unveils sweeping new tariffs. We've got a look at why this might be a pivotal week for Trump and his party.

Trump and Republicans Face a Trio of Tests

It's a critical week for President Trump, Republicans and the economy.

Trump is preparing to fire the next volley in his escalating trade war by imposing sweeping new tariffs on Wednesday, purposely plunging the U.S. into a risky economic experiment with potentially painful repercussions.

Finalizing a budget blueprint: While Trump decides on the final details of those levies (see more below), congressional Republicans are working to finalize their own plans for the budget framework needed to enact tax and spending cuts. GOP leaders want to push that outline through the Senate in the coming days, reportedly starting as soon as Wednesday, even as their members have some competing demands that could inject some drama and uncertainty into the process.

The GOP plan would set different budget targets for the House and Senate - essentially punting on some of the most divisive questions, allowing the Senate crucial flexibility in the process while leaving lawmakers to fight it out later over the size and specifics of spending cuts and targeted savings.

"House committees will be asked to cut at least $2 trillion in spending from safety-net programs, while Senate committees might be directed to find a minimum of a few billion dollars in savings," Politico reported over the weekend. "It's possible to write a final package that can bridge the difference, but it's likely to be politically tricky - requiring trust between GOP lawmakers in the two chambers after months of cross-Capitol competition, along with substantial pressure from Trump."

Adding to the budgetary uncertainty, the Senate parliamentarian still needs to rule on whether Republicans can use the accounting approach - gimmick, critics say - that they want to zero out the cost of extending their 2017 tax cuts.

Before the parliamentarian, Elizabeth MacDonough, makes her decision, "she needs to call a joint meeting for both parties to lay out their arguments for and against the approach to tallying how much a set of policies would grow or shrink the federal deficit," Politico's Jennifer Scholtes notes. "That meeting has yet to be scheduled, as Senate leaders continue to sharpen their respective cases for why the tactic should or should not be allowed."

Voters weigh in on Trump 2.0: Oh, and with that all brewing in Washington, D.C., high-profile elections in Florida and Wisconsin on Tuesday will be closely watched as referenda on the Trump administration's early days.

Trump Prepares to Unleash a New Set of Tariffs

President Donald Trump will unveil his tariff plan on Wednesday in the White House Rose Garden, Press Secretary Karoline Leavitt announced Monday. Leavitt said the tariffs would be "country-based" but provided no further details other than to say they are intended to "roll back the unfair trade practices that have been ripping off our country for decades." She also said there would be no exemptions "at this time," dashing hopes that the tariffs would be more modest than anticipated.

Although Trump has provided a few, sometimes contradictory clues about what might be coming - including possibly a flat tariff of 20% on all trading partners - White House economic adviser Kevin Hassett said this weekend that the final policy is still taking shape. "I can't give you any forward-looking guidance on what's going to happen this week," Hassett told Fox News. "The president has got a heck of a lot of analysis before him, and he's going to make the right choice, I'm sure."

Trump, who is framing the upcoming event as "Liberation Day," has already imposed new tariffs on Canada, Mexico and China, the country's three largest trading partners, and has promised to impose another set of tariffs focused on specific sectors such as pharmaceuticals and semiconductors in the coming weeks.

No worries about car prices: The new tariff rules coming Wednesday will arrive amid growing concerns among manufacturers, investors, retailers and the American public about the potentially negative effects resulting from Trump's rapidly escalating trade war - effects that include higher prices, the renewal of inflation, layoffs and the possibility of a stagflationary recession, in which both unemployment and prices rise.

Trump swatted at least one set of those concerns away on Sunday, telling NBC News that he is not concerned about the effect of tariffs on car prices, which are expected to be substantial, measuring in the thousands of dollars.

"I couldn't care less if they raise prices, because people are going to start buying American-made cars," Trump said. "I couldn't care less, because if the prices on foreign cars go up, they're going to buy American cars."

White House aide Peter Navarro defended the tariffs this weekend, framing the taxes on vehicle imports as a great source of revenue for the federal government while claiming that overall, the tariffs will raise trillions of dollars. "First of all, we're gonna raise about $100 billion with the auto tariffs alone," Navarro told Fox News. "In addition, the other tariffs are gonna raise about $600 billion a year. About $6 trillion over a 10-year period."

More broadly, Navarro promised that the tariffs would serve as a cure for all that ails America. "The message is tariffs are tax cuts. Tariffs are jobs. Tariffs are national security," Navarro said. "Tariffs will make America great again."

Broad resistance: All the talk of tariffs does not seem particularly popular with the American people. A new poll from CBS News/YouGov conducted over the weekend found that 55% of respondents think the Trump administration is putting too much of its focus on tariffs, with just 7% saying it was focusing too little and 38% saying the focus was just right. At the same time, 68% said it wasn't paying enough attention to lowering prices - an issue tariffs are expected to exacerbate.

Experts say the tariffs - which are essentially a tax paid by American importers, with the cost typically passed onto consumers, though not necessarily in a simple or linear fashion - will fall largely on the American public. Analysts at the Yale Budget Lab estimate that tariffs on vehicle imports could raise roughly $600 billion over a decade. But that revenue, collected by the federal government as a tax, would come largely out of the pockets of American car buyers, who would see prices for a new car rise by an average of $6,400, using 2024 prices as a reference point.

Budget expert Jessica Riedl of the conservative Manhattan Institute told The Washington Post that the size of the potential tariffs has little precedent, and would amount to the largest increase in federal revenue since World War II. "We've never seen a president propose such a drastic tax increase at a time where there is no national emergency requiring it," Riedl said. "You just do not hear numbers like $6 trillion over 10 years in legislation or executive orders."

Speaking to investors last month, General Motors Chief Financial Officer Paul Jacobson said the tariffs will have an impact on more than just prices. "If [the tariffs] become permanent, then there's a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc.," he said, per USA Today. "Those are questions that just don't have an answer today. As much as the market is pricing in a big impact of tariffs and lost profitability, think about a world where we're spending billions in capital, and then it ends. We can't be whipsawing the business back and forth."

In addition to the tricky question of capital allocation, some experts worry that the Trump administration is relying on a simple, one-tool approach in a complicated world. Economist Julia Coranado of MacroPolicy Perspectives told Politico said the Trump administration seems to be ignoring the complexities of the U.S. and global economies, which don't always do what policymakers intend and sometimes develop in ways that are hard to control. "The risk is that the economy is a dynamic system," she said. "So once you actually start putting it into reverse, it keeps going. It's not like you can control the macro economy with a little dial."

Reflecting the growing unease about the tariffs, Goldman Sachs economist Jan Hatzius adjusted the bank's outlook on the possibility of a recession this year, raising the odds to 35%. Hatzius said the change was based on a "lower growth baseline, the sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies." The bank now forecasts another 5% drop in the S&P 500 this year as well.

The White House's Navarro, though, made it clear that he isn't worried about any negative effects and advised Americans to simply have faith. "Trust in Trump," he said Sunday.

Quote of the Day

"This is really killing the goose that lays the golden egg."

  • Sabrina Howell, a New York University finance professor who has studied the role of the federal government in supporting innovation, quoted in a New York Times article detailing why economists are worried about the Trump administration's cuts to federal support for scientific research, including billions of dollars in grants through the National Institutes of Health.

"To economists, the policies threaten to undermine U.S. competitiveness in emerging areas like artificial intelligence, and to leave Americans as a whole poorer, less healthy and less productive in the decades ahead," Ben Casselman of the Times reports. "Scientists have warned that the United States risks losing its status as a leader in cutting-edge research and its reputation as a magnet for top scientific minds from around the world."

Casselman notes that studies have found that every dollar invested in research and development yields about $5 or more in economic benefits.

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