Update 874 – Tariff Rate Date Move
May CPI, Rescissions Bill Lead Week
On Tuesday, President Trump announced that the United States had completed a framework for a trade deal with China, calling for both countries to loosen export controls and bring tariff rates back down to levels agreed to in the Geneva “truce.” The next day, Treasury Secretary Scott Bessent suggested certain trading partners may see an extension of the Liberation Day rate pause ending July 9. The World Bank also released a bi-annual Global Economic Prospects report with a dismal growth forecast.
In other developments, the House OK’d a $9.4 billion rescissions request from the administration, which would claw back previously appropriated funding for USAID and the Corporation for Public Broadcasting. The administration has vowed to send additional packages to Congress for its consideration, but the continuous use of rescissions may make bipartisan, good-faith negotiations on FY26 appropriations more difficult. And per May inflation, the Trump administration’s sweeping tariffs have yet to boost prices. We also cover the aforementioned developments, as well as Billy Long’s confirmation to lead the IRS, Secretary Bessent’s Hill hearings on tax, and the House Financial Services Committee’s markup in this week’s roundup.
Good weekends all…
Best,
Dana
Headline
Off-Toggle Back on for 18 Key Trading Partners?
Treasury Secretary Scott Bessent, testifying at a hearing before the House Ways and Means Committee on Wednesday, opened the door to a selective extension of the delay in the implementation of Trump’s “Liberation Day” schedule of global tariffs. An extension of this implementation pause would be available to the 18 “important trading partners” currently engaged in tariff rate negotiations, per the White House.
The administration has not completed a single comprehensive trade deal to date, two-thirds of the way through the delay, which is scheduled to end July 9.
Presumably, the 18 important trading partners involved in negotiations include China, with which a framework was announced this week, but not one detailed enough to be announced before July 9. Secretaries Howard Lutnick and Scott Besset, along with USTR Jamieson Greer, met with their Chinese counterparts in London this week to salvage the Geneva deal, which was left in question after boiling tensions last week. President Trump announced the “DEAL WITH CHINA IS DONE” on Tuesday. But the term “deal” should be read with some skepticism. With details scarce, at most, the two countries have reestablished a framework for talks.
Reporting suggests the framework includes:
- Tariff Rates: Both sides reaffirmed the tariff rates agreed to in Geneva. The United States will face a 10 percent tariff on goods sent to China – negotiated down from 125 percent last month. The President posted to Truth Social that Chinese goods entering the United States have a 55 percent duty. This rate is calculated by stacking the 30 percent tariff on Chinese goods, announced in May, on a 25 percent tariff on select products that predate Trump’s second term.
- Export Controls: China has agreed to loosen controls on rare earth minerals and magnets, which were halted in April. Rare earths – a group of 17 elements used for many products, including electronics, auto parts, and defense systems – held immense significance in these negotiations. China has been slowrolling exports of these minerals and magnets in recent weeks, which fueled the brief deterioration of the relative “peace” between the two countries. Not only do China’s mines hold 70 percent of the world’s rare earths and 90 percent of the world’s supply of rare earth metals, but China also controls 90 percent of the processes needed to refine these minerals. The United States also agreed to loosen its own export controls on products including ethane, nuclear and aerospace parts, and other sensitive technologies.
- Student Visas: A recent directive out of the State Department signaled intent to “aggressively revoke” Chinese visa-holders studying in “critical fields” or with connections to the Chinese Communist Party. There are around 270,000 Chinese nationals studying in the United States. Trump’s Truth Social post revealed that these plans will be dropped as part of the framework.
Frankly, it seems as though China has largely settled back into its stance agreed to in the original Geneva “truce,” while the United States delegation had to provide two major “concessions” in loosening export controls and dropping visa restrictions. Markets were largely muted at the news this week, with the S&P 500 only up 1 percent.
The Trump administration secured more time to continue collecting tariffs this week as an appeals court extended a stay on a case challenging the legality of Trump’s International Emergency Economic Powers Act (IEEPA) tariffs. The federal appeals court issued a new date of July 31 for oral arguments.
Other Developments
Trump Rescissions Package Clears House
Yesterday, the House voted 214–212 to approve a $9.4 billion rescissions package targeting previously appropriated funding for international aid and public broadcasting, which was sent to Congress by the Trump administration last week. Four Republicans joined Democrats in opposing the package:
- Rep. Mark Amodei (R-NV)
- Rep. Brian Fitzpatrick (R-PA)
- Rep. Nicole Malliotakis (R-NY)
- Rep. Michael Turner (R-OH)
Two more Republicans – Representatives Nick LaLota (R-NY) and Don Bacon (R-NE) – originally voted against the package but flipped before the vote was closed, allowing it to pass narrowly. LaLota is rumored to have fought for assurances on SALT relief in reconciliation, and Bacon stated he secured an agreement on future funding for AIDS relief and public broadcasting.
The package, which was an effort to codify DOGE cuts, includes rescissions of funding for foreign aid/USAID ($8.3 billion) and the Corporation for Public Broadcasting ($1.1 billion) – which provides funding for NPR and PBS. While relatively small in size, this package marks the administration’s first attempt to ask Congress for its approval for withholding funds, something that it has largely been doing unilaterally to this point.
- Road Ahead: The Senate is expected to take up the package next month once it completes its work on reconciliation. While it is still early, the path to passage may be contentious, with concerns surrounding cuts to PEPFAR – which provides funding for global AIDS relief. Appropriations Chair Susan Collins (R-ME) has been the most vocal critic on this front, stating blatantly, “I do not support the rescission for PEPFAR and global health programs.” Rescissions packages are not subject to the filibuster in the Senate, meaning Republicans can afford to lose three votes on final passage.
- DOGE Implications: While the Administration has made it clear that this is meant to be only the first DOGE rescission package, what the future packages would look like is an open question. As we have discussed in previous updates, DOGE has had a tough time producing anything beyond a tiny fraction of the cuts that Musk promised, and the bulk of DOGE’s promised cuts were in foreign aid and cuts to public broadcasting. Both of these are fairly easy targets for conservatives, and trying to do something more drastic with rescissions, such as gutting the Department of Education, would face inevitable pushback from constituents and interest groups. Other DOGE goals, such as changes to the Social Security Administration and the changes to the civil service sought by Russ Vought, could likely be accomplished without resorting to rescissions. Going forward, this at the very least indicates that the Trump Administration will try to achieve cuts through Congress rather than unilaterally.
- FY26 Implications: Even though there is little clarity on the road ahead for codifying DOGE cuts, the rescissions package is certain to impact funding negotiations that will continue behind the scenes this summer. Appropriations Ranking Member Patty Murray (D-WA) has argued that the rescissions erode the trust and cooperation crucial to the government funding process. Appropriations bills require 60 votes in the Senate, a threshold the administration can essentially obviate by moving cuts through the rescissions process. If this is the path Trump and his administration choose to take, it gives little promise for good faith negotiations on appropriations moving forward.
CPI Inflation Ticks up to 2.4% in May; Tariff Costs Ahead
Inflation as measured by the Consumer Price Index (CPI) ticked up slightly in May. Prices rose by 0.1 percent on a monthly basis and by 2.4 percent on an annualized basis in May, according to the May CPI report released by the Bureau of Labor Statistics on Wednesday. This is slightly up from the annualized increase of 2.3 percent in April. Core CPI – which excludes food and energy prices – rose by 0.1 percent on a monthly basis and by 2.8 percent on an annualized basis. This is in line with the 2.8 percent year-on-year increase in core CPI in March and April.
The new inflation data reflects just the early impact of the Trump administration’s sweeping tariffs announced on April 2. The tame inflation data may be due to businesses having built up their inventories prior to the implementation of tariffs and tariffs on intermediate goods, those which are inputs into final goods, taking time to pass through. Inflation is expected to rise in the coming months, given the scope and scale of tariffs. The full impact of tariffs will take time to become visible in inflation data and may not become clear until late this summer.
Food prices rose by 0.3 percent on a monthly basis in May, with grocery prices rising by 0.3 percent over the month. Meanwhile, energy prices fell by 0.1 percent on a monthly basis last month.
The new inflation data comes just ahead of the Federal Open Market Committee’s (FOMC) meeting next week, during which it will decide the future level of interest rates. Committee officials opted to hold interest rates steady at the 4.25 to 4.5 percent range at their meeting last week and are monitoring the impact of the Trump administration’s trade, immigration, fiscal, and regulatory policy changes before they determine the path forward.
World Bank Slashes Growth Forecasts
On Tuesday, the World Bank released its bi-annual Global Economic Prospects report that announced its cut to its 2025 global growth forecast by 0.4 percent to 2.3 percent – the weakest performance in 17 years, outside of global recessions. The World Bank explicitly points to “heightened trade tensions and policy uncertainty” as the main culprits. Global inflation is also estimated to reach pre-pandemic levels of 2.9 percent in 2025 and 2026. The report lowered its GDP forecasts for 70 percent of all economies for 2025 from its January estimates, notably including:
- United States: -0.9 percent
- Japan: -0.5 percent
- Eurozone: -0.3 percent
Nominations
Senate OKs Long to Head IRS
Yesterday, the Senate confirmed former Representative William (Billy) Long as Commissioner of the Internal Revenue Service (IRS) in a party-line, 53-44 vote (three Democrats did not vote). Long will now be the sixth person to head the tax collection agency this calendar year. He will lead the agency until his predecessor, Danny Werfel’s, term ends in November 2027.
Throughout the confirmation process, Long faced Democratic concerns over his lack of tax policy experience, willingness to ensure that the IRS remains independent of political influence, and role in promoting fraudulent tax credits following his stint in Congress. Additionally, Long cosponsored a bill while in Congress that would have abolished the IRS in favor of a state-administered national sales tax.
Long’s confirmation stands against the backdrop of the Trump administration’s attempts to cripple the IRS, which he is largely expected to aid in as the agency’s Commissioner. Tens of thousands of employees have already left or are slated to leave, with workforce reductions driven by the Department of Government Efficiency (DOGE). The administration and congressional Republicans have also clawed back $80 billion in additional IRS funding provided through the 2022 Inflation Reduction Act (IRA), much of which was intended to boost enforcement on high-income taxpayers. They have relied heavily on the potential role modernization can play in mitigating the need for staff and funding, yet Trump’s FY26 budget proposal, released last month, provides no additional funding for business system modernization.
Treasury Secretary Scott Bessent and the administration have pointed to this year’s successful filing season to support their sweeping changes, though experts – including former IRS Commissioner Danny Werfel – contend that chaos is on the horizon for future filing seasons.
Hearings
Bessent Faces House, Senate Tax-Writing Committees
Treasury Secretary Scott Bessent came before the House Ways and Means Committee on Wednesday and the Senate Finance Committee on Thursday to discuss, among other things, the tax-heavy reconciliation bill that is currently making its way through Congress.
Ways and Means and Finance Democrats used the opportunity to highlight the harmful nature of Republicans’ “One Big Beautiful Bill” (OBBB), which is currently under consideration in the Senate after moving through the House late last month. Democrats highlighted the skew of the tax cuts to the ultra-wealthy, highlighting that 40 percent of the bill’s benefits are expected to go to the top five percent of earners. They also noted that the bill is partially paid for by the largest cuts to healthcare and food assistance programs in U.S. history – cuts that will further harm the most vulnerable Americans who benefit much less from the reconciliation bill’s tax provisions.
In their pushback to Democratic criticisms of the tax cuts’ distributional impact, Bessent and Republicans repeatedly cited increased liabilities that all Americans would face if TCJA provisions expire as scheduled at the end of this year. While it is true that there is a “tax cliff” on the horizon, recall that the cliff was engineered by Republicans. When passing the 2017 TCJA, they chose to prioritize a permanent windfall for corporations (21 percent corporate rate), allowing tax cuts for individuals to expire at the end of 2025. Now that their self-imposed cliff has arrived, Republicans are trying to jam through a bill full of wealthy tax cuts partially paid for by cuts to federal healthcare and food assistance under the false premise that this is the only way for lower-income Americans to keep their tax cuts, too.
Instead of using working- and middle-class Americans as a bargaining chip to push through trillions in tax cuts for the ultra wealthy, Republicans could work to pass a bipartisan extension of tax cuts for those who make under $400,000 a year – something Democrats have continuously demonstrated support for. But, for now, their priorities seem clear: as Senate Ranking Member Ron Wyden (D-OR) stated in Thursday’s hearing, “it is caviar over kids, it is Mar-a-Lago over the middle class.”
HFSC Advances Bipartisan Systemic Risk Exemption Bill
The House Financial Services Committee convened on Tuesday for a markup in which eight bills were favorably reported, including important legislation to boost transparency following a banking crisis.
H.R. 3716, the Systemic Risk Authority Transparency Act, sponsored by Representative Al Green (D-TX), was developed following bank failures of 2023, when the Federal Deposit Insurance Corporation (FDIC) granted a systemic risk exemption (SRE), opting to fully protect uninsured depositors at those failed banks. The bill, which Green reintroduced earlier this month, would require that:
- within 60 days of the invocation of an SRE, the GAO produces a preliminary post-failure report.
- within 90 days of the invocation of an SRE, the appropriate regulator, including the FDIC, OCC, or Federal Reserve, produces a preliminary post-failure report.
- within 180 days of the invocation of an SRE, the GAO and relevant bank regulators issue a comprehensive post-failure report.
These reports would provide Congress and the public with analyses to identify management, supervisory and regulatory shortcomings that contributed to the related risk within the broader financial system. The bill passed in a 51-0 vote.
Other bills advanced during the markup include H.R. 3633, the CLARITY Act, sponsored by Chair French Hill (R-AR), which advanced 32-19, as we discussed comprehensively in our last update.
Look Ahead
Tuesday, June 17
- Federal Open Market Committee meeting (Day 1)
Wednesday, June 18
- Federal Open Market Committee meeting (Day 2)