Update 862: Tariffs Taking a Toll

April 29, 2025 | Education, FDIC, Judicial Branch, Nominations, POTUS, SEC, Taxes, Trade, Update, Weekly Round Up | By

Update 862 – Tariffs Taking a Toll
Poll Numbers Drop, No Deals Done

Finance and trade ministers from around the world flocked to D.C. this week for the IMF-World Bank Spring Meetings. Top of mind were Trump’s tariffs and his attack on the global trading system. As forecasts for global growth and inflation were revised downward, the Trump administration claims it is continuing to make progress in securing trade deals, with most attention and rhetoric focused on China. Signs of frustration are starting to show in polling, with a 40 percent approval rating for the President – his lowest this term – and 49 percent of Americans saying his policies are making the economy weaker.

In other economic policy developments, the Education Department announced it would resume collecting payments on defaulted student loans on May 5, and the FDIC laid out plans to cut over 1,200 employees, with potential firings to come next month. Trump also came out against a GOP proposal for a roughly 40 percent tax rate on incomes over $1 million/year, leaving more uncertainty about how Republicans will pay for trillions of dollars in tax cuts they plan to enact through reconciliation later this year. 

Good weekends all… 

Best, 

Dana

Headline

World Economic Leaders Talk Tariffs in D.C.

Global finance leaders gathered in Washington, DC this week for the IMF-World Bank Spring Meetings amid a complete shake-up of the international economy at the hands of one man, a few blocks away. Unsurprisingly, the unofficial theme of the week has been “uncertainty” as President Donald Trump’s aggressive and chaotic tariff rollout has rattled the world.

IMF Chief Economist Pierre-Olivier Gourinchas declared a new era for the global economy as the U.S. effective tariff rate has surged along with general policy uncertainty, leaving the world unsure of how to prepare their countries’ economies for the future. Nobody knows what Trump will do next or how long it will take to get any of his promised trade deals settled, although he claims to have made 200 deals without providing any specifics. So it is unsurprising that consumers, business owners, and investors are reporting a lack of confidence at unprecedented levels while growth and inflation forecasts are deteriorating. 

The highly anticipated release of the World Economic Outlook assessed the impact of tariff measures imposed by the United States and countermeasures by its trading partners announced as of April 4. The report provides a reference forecast rather than the IMF’s usual baseline – given the complexity and unpredictable fluidity of the current political and economic moment – and is based on tariffs announced by Trump on April 2 and initial responses.

The IMF projects global growth will fall to 2.8 percent in 2025 and 3.0 percent in 2026, compared to the 3.3 percent growth projected for both years in January. Global inflation is projected to fall at a slower pace than projected in January, to 4.3 percent in 2025 compared to the previously projected 4.2 percent, and to 3.6 percent in 2026 compared to the 3.5 percent projected in January. 

Source: IMF

The report revised growth down for almost all countries, largely due to new trade measures and their indirect effects through trade linkage spillovers, heightened uncertainty and deteriorating sentiment. The IMF’s reference forecast projects that the United States economy will grow by 1.8 percent this year – significantly slower than the 2.7 percent growth projected in January – due to greater policy uncertainty, trade tensions, and softer demand momentum. It projects significant downgrades for countries affected most by recent trade measures, including China. In 2025, the IMF projects advanced economies will grow by 1.4 percent and emerging market and developing economies will grow by 3.7 percent.

The report also projects notable upward revisions in inflation in advanced economies and slight downward revisions in inflation for emerging markets and developing economies.

Another closely watched element of the week was how the Trump administration would signal their long-term support – if any – for the IMF, given critical comments in the past. While still calling for reform and critiquing the IMF’s recent focus on climate change and social issues, Treasury Secretary Scott Bessent said the U.S. is committed to maintaining the leadership of the IMF and World Bank. Bessent also attempted to reassure the international community by claiming, “America First does not mean America alone,” calling for collaboration. This call for cooperation may prove to be a tough ask after levying a trade war against nearly all of our trading partners. 

Hints at De-Escalation – or Folding 

This week was a clear opportunity for many countries to cut trade deals with the Trump administration as they sent their top economic leaders to D.C. Front and center, however, was China. Signals out of the White House hinted at some possible reprieve on the horizon as Bessent, in a private event with investors on Tuesday, characterized the current duty of 145 percent on Chinese imports as “unsustainable,” to which he specified de-escalation could be near. Trump seconded that sentiment on Tuesday and has even hinted at ongoing negotiations between the U.S. and China, and in an interview published Friday, he claims to have spoken with Chinese President Xi Jinping. However, China has made clear throughout the week that the two countries ”have not engaged in any consultations or negotiations regarding tariffs, let alone reached an agreement.” The Chinese government has not commented on Trump’s claims to have spoken with President Xi as of Friday morning.

Reporting this week also suggests that Trump administration officials are internally discussing cuts – with some intel revealing cuts between 50 to 60 percent – to the steep tariffs, hoping to de-escalate the trade war. The President has been adamant that a deal is needed before slashing the tariffs, while the tone out of Beijing is the opposite: Trump needs to cut the tariffs before coming to the table.

Whether or not Trump caves first and folds to the mounting pressure around him to cut tariff rates, the harmful effects of his stubborn and unclear motives have continued to shake the economy. Pew Research Center polling suggests that 59% of Americans disapprove of his tariff increases, while only 39% approve. Pew also found that 49 percent of Americans say his policies have made the economy weaker, down 14 points from a post-election survey. The markets and the American people are signaling they are not on board with his approach, but will that be enough to get his attention? 

Trump Sued by States

On Wednesday, a dozen states filed a lawsuit calling for the courts to block Trump’s alleged “illegal tariffs.” These states argue that the Constitution grants Congress the power to levy tariffs. The states include: 

  • Arizona
  • Colorado
  • Connecticut
  • Delaware
  • Illinois
  • Maine
  • Minnesota
  • Nevada 
  • New Mexico
  • New York
  • Oregon 
  • Vermont

The suit questions the ability of Trump to use the International Emergency Economic Powers Act (IEEPA) to levy tariffs whenever he claims there is an “emergency.” These powers are quite broad, and while they have never been used to levy such sweeping tariffs, the White House is confident its actions are justified. 

This lawsuit follows a push in Congress to revert some of the authority of levying tariffs back to itself, as constituents grew wary of the President’s tariff actions. While these actors will likely struggle to curb the President’s agenda, they are a sign that the tides are turning against Trump’s chaotic trade policy. 

Trump Nominees

Atkins, SEC Sworn In

On Monday, Paul Atkins was sworn in as chairman of the Securities and Exchange Commission (SEC). This will be Atkins’s second time on the SEC, having served as a member from 2002 to 2008 during the lead-up to and eventual fallout of the financial crisis. As mentioned previously, Atkins has made clear his intention to push a deregulatory and pro-crypto agenda at the SEC, in stark contrast to his predecessor, Gary Gensler. Atkins’ appointment is a sizable win for the crypto industry and a loss for consumer advocates, who worry that Atkins’ industry ties and previous tenure at the SEC prove that Atkins cannot be trusted to fairly regulate America’s capital markets or identify market stress when it arises. 

Other Developments

Education Dep’t to Restart Student Loan Repayment

On Tuesday, the Department of Education released a statement saying that beginning on May 5, it would resume collecting payments on defaulted student loans. The Department of Education’s student loan repayment requirements were paused during the pandemic in March 2020, and President Biden had simply decided not to restart them as part of his larger efforts to reduce student debt. As of the most recent data, more than 42 million people hold $1.6 trillion in student loans from the federal government. Over five million holders have not made a repayment in the past year, and an additional four million are in “late-stage delinquency,” meaning they are at high risk of defaulting.

Once payment collections resume, millions of borrowers are likely to see their credit scores drop while many more will be at risk of defaulting. This means that these same borrowers will see a dramatic increase in their financial difficulties. All of this has been Trump’s plan from the start, as he has repeatedly made clear that he has no intention of providing clemency to federal student loan borrowers.

FDIC Plans to Cut Over 1,200 Employees

On Monday, staff at the Federal Deposit Insurance Corporation (FDIC) reportedly received an email informing them that the agency plans to reduce its workforce by 1,250 employees. The plan is part of the Trump administration’s broader chaotic and disruptive effort to reduce the federal workforce. 

Approximately 6,200 staff were employed at the federal banking regulator at the beginning of January, meaning these cuts would reduce the FDIC’s workforce by over 20 percent.

Eligible employees were given until May 5 to accept voluntary dismissals, and staff were told that the agency would begin issuing reduction in force (RIF) notices on May 13 if not enough employees agreed to leave voluntarily. The announced cuts will include the roughly 500 employees who accepted the Trump administration’s deferred resignation program in February. The FDIC also plans to leave some open positions unfilled. 

To be clear, cutting the FDIC’s workforce would not reduce the federal budget since the FDIC does not receive federal funding. The agency is primarily funded by assessments on banks. These cuts will only give the banking regulator fewer resources with which to keep the financial system safe and sound, particularly amidst periods of heightened stress. 

Trump Shuts Down GOP’s Millionaire Tax Proposal

House and Senate Republicans approved a budget resolution earlier this month, instructing committees to craft proposals that either add to or subtract from the deficit by a specified amount. These proposals will serve as the basis for a greater reconciliation bill – a privileged measure that Republicans plan to use to pass another package of costly tax cuts financed by cuts to federal assistance in areas like nutrition and healthcare. 

Keeping Republican support for the measure has necessitated a careful balancing act between the differing – often contradictory – demands of GOP fiscal hawks and moderates. One of the consistent stopping points in this negotiation has been how or to what extent to pay for Republicans costly tax plans, which include a $4.6 trillion extension of expiring TCJA provisions in addition to Trump campaign promises that could potentially cost trillions, such as eliminating taxes on tips, overtime, and Social Security. 

In recent weeks, Republicans have been, rather uncharacteristically, discussing revenue-raising options as they work on crafting their reconciliation bill, with the seemingly most salient proposal being a higher top marginal tax rate of 39.6 percent on incomes over $1 million a year. Currently, the top bracket is set at 37 percent and applies to incomes above $626,350. This change would generate as much as $420 billion in revenue over the next 10 years, according to the Yale Budget Lab, a significant score considering the high cost of the GOP tax agenda. 

In Congress, this proposal has gotten a mixed reception. House Freedom Caucus (HFC) Chair Andy Harris (R-MD) characterized the high-income tax increase as “reasonable,” and Senators Chuck Grassley (R-IA) and Kevin Cramer (R-ND) acknowledged that the Senate Finance Committee was exploring such a proposal for reconciliation. Conversely, Speaker Mike Johnson (R-LA) and House Majority Leader Steve Scalise (R-LA), in addition to Senators John Cornyn (R-TX) and Ted Cruz (R-TX), have publicly spoken out against the proposal. While the Trump administration originally seemed supportive of the idea, leaning into the populist theme of its campaign, Trump walked back support earlier this week over concerns that “a lot of the millionaires would leave the country” if facing a higher income tax rate.  

While the proposal for a 39.6 percent tax rate on incomes over $1 million/year is unlikely to be included in the GOP reconciliation package later this year, its brief consideration does show that Republicans are wary of the negative optics surrounding their plans to pass tax cuts that are skewed towards the ultra-wealthy and financed by cuts to key government assistance programs. However, if this concern was about substance and not just optics, Republicans would work with Democrats to craft a more progressive, bipartisan tax package that forces wealthy Americans to pay their fair share and provides relief to the working- and middle-class. But for now, we won’t hold our breath. 

Look Ahead

Tuesday, April 29

Wednesday, April 30

Thursday, May 1

  • House Committee on Financial Services Markup

Friday, May 2

  • April jobs report

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