This week will be among the most consequential to date for the Trump 2.0 Administration and the Republican-controlled 119th Congress. On Tuesday, the Commerce Department, Treasury, and USTR will release trade reports as mandated under the America First Trade Policy memo, setting the stage for the imposition of broad-based reciprocal tariffs on April 2 (aka “Liberation Day”). Meanwhile, the Senate will likely consider the House budget resolution, aiming to add its own set of reconciliation instructions and tee up a potential House vote the week of April 7. If successful, this would unlock the reconciliation process ahead of the congressional Easter Recess. Below is a look at what to expect.
Trade Update
While the situation remains fluid and only one person ultimately knows what will happen on April 2, the Administration is poised to narrow reciprocal tariffs to the so-called “Dirty 15” trading partners with the most imbalanced tariffs vis-à-vis the United States. The 15 partners have not yet been announced, but speculation has focused on a likely pool of 21: Australia, Brazil, Canada, China, EU, India, Indonesia, Japan, South Korea, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Switzerland, Taiwan, Thailand, Turkey, UK, and Vietnam.
What appears most likely is that immediate tariffs would be imposed, but longer-term tariffs may be subject to more investigations (i.e., a longer lead time than April 2). And while the President has ruled out stacking sectorial tariffs on top of the reciprocal tariffs, autos were announced this past week, leaving stakeholders to wonder as to whether we’ll see anything on chips, lumber, and/or pharmaceuticals.
We have two great documents prepared by the office of Rep. Rudy Yakym (R-IN) that you may have seen if you’re on their “Trade Tidbits” email list. Both help categorize the actions to date and those to come. You may view them by clicking on the links below.
Harmonized Tariff Threat Schedule
America First Trade Policy Memo
Budget Reconciliation State of Play
Last week, Majority Leader John Thune (R-SD) announced that the Senate will likely consider the House-passed budget resolution as soon as the week of March 31, a week earlier than previously planned. This followed a productive discussion with Finance Committee Chairman Mike Crapo (R-ID), Ways and Means Committee Chairman Jason Smith (R-MO), Leader Thune, Speaker Mike Johnson (R-LA), Secretary Scott Bessent, and White House National Economic Council Director Kevin Hassett (collectively the “Big 6” in tax discussions).
Negotiations have been ongoing since the House and Senate passed very different budget resolutions last month. As a reminder, the original “skinny” Senate budget resolution would have effectuated legislation to increase border security and defense spending totaling about $325 billion, which they intended to fully offset, leaving tax policy to a future budget reconciliation debate later in the year.
In contrast, the House-passed budget would provide for a much broader reconciliation bill that encompasses President Trump’s desire for “one big, beautiful, bill” that addresses major tax legislation, deficit reduction, and a debt limit increase. In order to do this, the House budget resolution instructs the Ways and Means Committee to produce legislation that increases the deficit by no more than $4 trillion over 10 years, while mandating separate deficit reduction totaling $1.5 trillion from outside of the W&M Committee, and raising the nation’s borrowing limit by $4 trillion. If deficit reduction is greater than $1.5 trillion, the allowable net tax cut in the House would rise dollar-for-dollar to a maximum of $4.5 trillion.
While there continues to be varying opinions among House and Seante Republicans on the correct size of the tax cut and spending reductions, the Senate would like to keep the process moving forward, even if doing so would not answer each of the outstanding questions that will need to be addressed for there to be reconciliation legislation enacted later this summer. As such, the current plan is for the Senate GOP to add its own budget reconciliation instructions to the House-passed budget, while leaving in place the reconciliation instructions the House imposed upon its own committees. In effect, this would place the onus on each chamber to hit its respective benchmarks in a final reconciliation bill.
Outstanding Budget Issues to Resolve
Merging the two chambers’ budgets boils down to five major top-level issues:
- One Big, Beautiful Bill vs. Two Bills. The Senate moving to take up and amend the House budget would appear to resolve this issue in favor of the House approach.
- Debt Limit. After initially resisting the House’s inclusion of debt limit in reconciliation legislation, the Senate is moving towards accepting that approach, though vote concerns persist. Note the “X date” is expected to land between June and September, though Treasury will be the final arbiter.
- Budget Baseline. The Senate would still like to pursue use of a “current policy baseline” as opposed to the House’s “current law baseline.” The key difference between the two approaches is that use of a current policy baseline would make it feasible to legislate tax cuts that are “permanent in law” as opposed to subject to an automatic sunset. This question remains contingent upon continued discussions with the Senate parliamentarian, as well as with the House.
- Size and Duration of the Tax Cut. The Senate is likely to provide a more robust tax cut instruction within the budget window than the House bill, so as to leave more room for President Trump’s tax policy priorities (e.g., no tax on tips, overtime, or social security) and reduce the need for tax offsets.
- Spending Cut Directions. The Senate will pursue spending cut directions that instruct low minimum savings to committee chairs, as opposed to the House approach which mandates high minimum deficit reduction requirements by committee. The Senate instructions will direct instructed chairs to find a minimum of $1 billion in deficit reduction savings over 10 years, though they will plan to greatly exceed those minimum targets. This construct gives Senate committees maximum flexibility to pursue broader spending cuts without jeopardizing the simple majority vote standard for reconciliation legislation in the Senate-which is the entire benefit of utilizing reconciliation in the first place. In contrast, the House mandates a minimum of $1.5 trillion in savings, including instructions that Energy and Commerce, alone, produce legislation that reduces the deficit by no less than $880 billion from programs within its jurisdiction.
To reiterate, the Senate is not at this stage proposing that the House change its own instructions. They are merely adding in their own instructions which reflect the different dynamic that exists across the Capitol as both the House and Senate pursue tax cuts and spending reductions simultaneously. House conservatives, though, will likely seek clarification on what would happen in the event that a final reconciliation bill meets the lower deficit reduction benchmarks set by the Senate without meeting the higher deficit reduction benchmarks set by the House-with early reads suggesting that such a bill would still maintain the privilege of a simple-majority vote in the Senate.
OUTLOOK/ANALYSIS. As we approach Liberation Day and the Senate pushes ahead on reconciliation, this week represents the core of the Trump 2.0 agenda and underscores the razor-thin margins of unified Republican control.
If the Senate successfully passes a revised budget resolution this week-which would require up to 50 hours of debate followed by another “vote-a-rama” exercise, same as in February-the House will then need to decide whether to accept the budget as is or make further amendments. However, the actual reconciliation process of crafting legislation cannot begin until both the House and Senate have enacted the budget in identical form. If both chambers are able to clear this hurdle prior to the Easter recess, expect the House and Senate to focus on this process in May, June, and July, with a goal of enactment prior to the August Recess and/or the looming “X date,” whichever comes first.
Meanwhile, House special elections will be held in Florida this Tuesday to fill the vacancies created by the resignations of former representatives Matt Gaetz (R-FL) and Michael Waltz (R-FL). House Republicans currently hold a 218-213 advantage with four vacancies. With Rep. Elise Stefanik (R-NY) remaining in the House, Republicans would hold onto the majority (just barely) if Republicans were to lose both special elections on Tuesday, as well as see Democrats retain the open seats created by the passing of former Reps. Raul Grijalva (D-AZ) and Sylvester Turner (D-TX). Such a scenario, however, would leave Speaker Johnson with zero margin of error down the road and make the vote of frequent dissenter Rep. Thomas Massie (R-KY) essential.
All said, the coming week will be highly impactful and provide clarity on the legislative agenda, trade policy, and partisan margins. We will keep you updated.
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