Washington has quieted down with the start of the congressional August Recess. That said, there are a number of items we continue to track that are outlined below. We are happy to provide additional color on anything of particular interest.
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Artificial Intelligence / Chips
In addition to opposition from China hawks and congressional Democrats, the Administration has received mild pushback from free market conservatives on the deal cut with Nvidia to grant H20 export licenses to Chinese firms in exchange for a 15 percent share of revenue. This highly unusual (though very Trumpian) move appears to be a new standard of operating with foreign trading partners (investment funds, DFI pledges) and now the private sector.
Secretary Bessent said the deals with Nvidia and AMD could serve as a model for other companies telling Bloomberg, “I think we could see it in other industries over time. Right now, this is unique, but now that we have the model and the beta test, why not expand it?” Despite Bessent saying this is a one-off, we are already seeing a version of this strategy play out with respect to foreign chipmakers like Samsung (more on that below), Apple’s $600 billion investment commitment, and the recent riff with Intel (also more below).
Interestingly, the Chinese reaction to the H20s has confirmed the views of Sacks and others in the tech industry. The CCP is now investigating backdoor security risks of the chips prior to allowing Chinese firms’ use and demanded in late July that Nvidia comply with a cybersecurity review before resuming shipments. Further, the CCP is actively seeking to prevent Chinese firms from becoming dependent on the US tech stack.
The State-Owned Assets Supervision and Administration Commission (SASAC), led by Zhang Yuzhuo, is spearheading an “explosive growth” in domestic-grown AI, designating Shanghai as the country’s tech hub and dissuading other provinces from pursuing their own development. Bessent confirmed the above, saying “…it also tells me that they are worried about the Nvidia chips becoming the standard in China.”
Thus, the China hawk pushback on the H20 deal appears to be somewhat of a moot point. China Select Committee Chairman John Moolenaar (R-MI) and Ranking Member Raja Krishnamoorthi (R-IL) have nonetheless continued to oppose the deal. Moolenaar said in a statement this week that “Export controls are a frontline defense in protecting our national security. We should not set a precedent that incentivizes the Government to grant licenses to sell to China technology that will enhance its AI capabilities.” Krishnamoorthi echoed the economic incentive argument, saying “Our export control regime must be based on genuine security considerations, not creative taxation schemes disguised as national security policy.”
Meanwhile, we are awaiting Section 232 chips tariffs as soon as this week, pegged at 100 percent. Trump told CNBC that “If you’ve made a commitment to build or you’re in the process of building, as many are, there is no tariff.” Apple’s $600 billion commitment coincided with Trump’s 232 announcement. And both Samsung (Texas investment) and SK Hynix (Indiana investment) are expected to qualify under the President’s exemption, as is TSMC (reported $200 billion commitment). It’s still a question as to whether the EU would be exempt from a stacked 232 tariff or instead remain at its 15 percent reciprocal rate for the purposes of chips.
On the opposite side of the coin was Intel. After the President’s Truth Social post calling for his resignation, Lip-Bu Tan visited the White House for what appears to have resulted in a successful meeting with Trump. At issue was LBT’s past as an investor and advisor to SMIC and his tenure as CEO at Cadence Design Systems. Cadence pled guilty to civil and criminal export control violations on July 28, agreeing to pay a $140 million fine for illegally selling chip design tech to the Chinese. Trump’s original Truth post followed a letter from Senate Intelligence Chairman Tom Cotton (R-AR) to Intel’s board chair expressing concern with the “security and integrity of Intel’s operations and its potential impact on U.S. national security.” Though much more of a hardliner that the President and Vice President Vance, Cotton still carries substantial influence with the Administration and rhetorical pressure will continue to emanate from Congress on those countries doing business in China.
Global Trade
The Administration reached a major trade agenda milestone on August 1 by negotiating interim agreements with seven major trading partners (EU, Indonesia, Japan, Korea, the Philippines, UK, Vietnam) while enforcing “Liberation Day” tariff levels (15-30 percent) with those countries unable to reach an agreement (Liberation Day levels were adjusted up or down for a few specific countries). Countries not listed in the President’s EO will be subject to the 10 percent baseline reciprocal rate.
We now expect USTR to focus on implementation of the agreements made to date, while kickstarting a renegotiation of USMCA this fall. Ambassador Greer outlined the Administration’s trade goals in a recent NYT op-ed ICYMI.
A number of countries are currently on the outside looking in, most notably: Brazil, Canada, India, and Switzerland (39 percent). Those countries remain at odds with the Administration and we do not expect a resolution in the near term, though some exceptions are being made for both USMCA-compliant goods and those products that cannot be produced in the US (particularly with respect to Brazil).
India remains wrapped up in the Russia/Ukraine conflict, showing no signs of bending to the Administration’s demands on Russian oil. The US trade team is scheduled to visit India on August 25 ahead of the August 27 deadline imposing an additional 25 percent tariff on India via the secondary Russian sanctions. The sanction tariff stacks on top of products subject to the IEEPA reciprocal tariff for India, but not on top of Section 232s. Indian goods on the water are exempted for products on the final mode of transit as of the effective dates and entered into the US by September 17.
Secondary Russia sanctions will continue to color the trade landscape. At the G-7 in Canada, Secretary Bessent pushed leaders to consider a 200 percent secondary tariff on China. The EU’s reaction has been cool to date but the Administration is losing patience. Bessent said this week that it was time for the Europeans to “put up or shut up” when it comes to joining the US in secondary sanctions and increasing pressure on the Russian economy. It is, no doubt, ironic that the EU’s Ukraine hawks have balked on applying meaningful pressure vis-à-vis Russian energy. Both Trump and Bessent have said that if things do not go well with Putin tomorrow (i.e., agreeing to an immediate ceasefire), all options are on the table and “sanctions or secondary tariffs could go up.” Thus, despite the media’s rhetoric, the US brings a good amount of leverage into the Alaska summit and the outcome will have substantial ripple effects in the ongoing global trade talks.
Meanwhile, deals with Cambodia, Malaysia, Thailand, and Taiwan could be forthcoming. It is also worth noting that on July 30, President Trump suspended duty-free treatment for all shipments that previously qualified for de minimis treatment.
In addition to forthcoming trade deal implementation details and enforcement, key inflection points this fall include:
- August 15: Trump/Putin meeting (ceasefire goal)
- TBD: “Quick” second Russia/Ukraine meeting
- August 25: US/India trade talks resume
- August 27: Russian oil secondary sanctions
- August 29: Implementation of de minimis suspension (all non-postal low-value packages subject to each country’s IEEPA rate)
- September: USMCA renegotiation starts
- September 30: Government funding deadline (potential impacts to CBP)
- October 14: Chinese shipping fee deadline
- October 31: APEC (potential Trump/Xi meeting)
- TBD: Court of Appeals for the Federal Circuit decision on CIT’s ruling against IEEPA tariffs (likely appeal to the Supreme Court)
China Negotiations
China is very much a separate trade negotiation as we’ve previously discussed and the current truce (additional 90-day extension announced this week) remains fragile. Whether the Administration’s goal is to fully decouple remains an open-ended question. While many China hawks continue to push decoupling, we believe it is more likely that President Trump and his negotiating lead, Secretary Bessent, are pursuing a middle ground of moderately rebalancing the trade deficit (via purchasing agreements and greater Chinese consumption) and securing critical supply chains.
There are signs that the CCP could be aligned with the US goal of transforming the Chinese economy from overproduction to one of consumption. The Party will hold its upcoming Fourth Plenum in October and is expected to modify its Five Year Plan to include consumption support. Last November’s Third Plenum already introduced a consumption framework, calling on the Party to “strengthen the people-oriented orientation of macroeconomic policies” to improve “people’s livelihood” and promote “consumption.”
Unlike the recently announced trade deals, particularly with the EU, Japan, and Korea, the US is not seeking Chinese investment. Quite the contrary given the global competitive race and national security concerns. Bessent affirmed that stance with Bloomberg this week when asked about inbound Chinese investment, saying “my sense is no because a lot of the buyout or the funds from the buyout are going to go to critical industries that we need to reshore and a lot of those need to be reshored away from China.” To that end, the Administration (via USDA and DOD) is actively investigating and seeking to thwart Chinese purchases of US farmland near military installations.
This more nuanced approach is evidenced by the Administration’s softening on foreign student visas, H20 chip licenses, continued delay of the TikTok sale, and a less aggressive posture with respect to Taiwan. Ultimately, a Trump/Xi summit, as soon as this October, will set the stage for the future of the US/China relationship.
Again, the congressional role here is limited, as noted above with the China Select Committee. Both the House and Senate are expected to consider their versions of the annual National Defense Authorization Act (NDAA) on the floor in September, which will likely act as a vehicle for a wish list of China security policy (e.g., outbound investment, delisting, US farmland, chip exports, etc.). It’s important to note that this is primarily noise and the final bill will be subject to the President’s pen and not signed into law until December.
Housing Policy / The Fed
Before leaving for August, the Senate Banking Committee unanimously approved a bipartisan housing package authored by Chairman Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-MA). Housing remains a high priority for both parties and its continued uptick in the July CPI numbers demonstrate its staying power with policymakers. Given the bipartisan committee vote, it is likely that the Scott/Warren bill will receive Senate floor time this fall and come over to the House with a head of steam. It’s unclear if the House will attempt to amend the bill or pass as is. The White House will likely determine the decision, much like they did with respect to GENIUS and CLARITY in July (more on digital asset legislation below).
For its part and given the sensitivity surrounding affordability (see polling below), the Administration is pursuing both an executive order this fall (the contents of which are unclear at the moment, though we continue to seek more information) and a potentially limited IPO of the GSEs. The latter move would likely require congressional action to be more fulsome in scope but given the difficulties of 60 votes in the Senate, the Administration is likely to go it alone.
With an unclear jobs report and CPI at a roughly static pace, we expect a moderate Fed rate cut in September of 25 bps. The Administration’s preferred 50 bps is unlikely.
Stephen Miran’s nomination for the expiring term vacancy on the Federal Reserve Board of Governors will begin moving when the Senate returns in September, though nominations continue to be stalled absent a move by Republicans to change Senate rules governing the lethargic confirmation process. We should also see Trump nominating a Chairman in the coming weeks, though the field of candidates has recently grown beyond just that of Kevin Hasset and Kevin Warsh. Secretary Bessent continues to oversee the vetting process.
Miscellaneous Items
OBBBA Implementation. Now confirmed, Assistant Secretary for Tax, Ken Kies, and his team at Treasury will be busy implementing the tax provisions of the OBBBA and issuing guidance. We expect a wide scale lobbying effort throughout the fall to ensure industries are included/excluded. One of the most high-profile fights will be over the IRA’s expiring green energy credits and the President’s corresponding EO at the request of fiscal hawk holdouts. A handful of Republican moderates and renewable advocates, led by Senators John Curtis (R-UT) and Chuck Grassley (R-IA), have weighed in with Bessent strongly opposing final guidance that cuts against the law and intention of the “start construction” requirement of the OBBBA. This primarily relates to solar and wind projects since OBBBA included a much earlier (7/4/26) start of construction date for those technologies. Our sense is that Treasury wants to handle this very professionally and is looking to prevent abuse but not fundamentally undo the predictability of the placed-in-service safe harbor, while at the same time demonstrate to the White House that it is cracking down on any potential abuses. Note that the preliminary Treasury guidance is due August 20, 45 days following the July 4 enactment of the OBBBA, and industry remains concerned as to what they might see. Also note that unclear guidance or final rules that take a while to finalize will effectively end the credit for wind and solar projects.
Government Funding. Although the House and Senate have passed a handful of FY26 discretionary funding bills, it’s highly unlikely that a fulsome bipartisan and bicameral spending agreement will be met by the September 30 deadline. Continuing resolutions (CRs) are historically the default, but there are signs that a short-term CR allowing congressional negotiations to continue may have trouble passing the House and/or Senate. This spring, the House passed a Republican-only CR which was eventually adopted by the Senate due to the support of Minority Leader Chuck Schumer (D-NY). As a result, Schumer faced intense backlash from the Left and continues to be mindful of a potential primary from AOC. Moreover, House Republicans are unlikely to be able to repeat the maneuver with spending issues becoming more and more of a breakpoint for conservatives. Finally, the signing of the President’s $9 billion rescissions package, and OMB Director’s Vought’s intention to follow it up with a second spending claw-back package and/or pocket vetoes, has all but poisoned the bipartisan well. Keep in mind that during a shutdown, mandatory spending continues (e.g., social security checks, Medicaid, Medicare, SNAP, etc.) as well as defense spending, but discretionary funds, including civilian as well as troop pay, are suspended. The President has the ability to deem other programs and personnel essential on a discretionary basis, possibly enabling him to manage a shutdown in a more favorable fashion for Republican priorities.
Digital Assets. Following enactment of the GENIUS Act (stablecoins) in July, attention has now turned to Senate consideration of the more fulsome CLARITY Act (market structure) that passed the House by a larger than expected bipartisan margin, adding momentum to Senate consideration. It remains to be seen when Chairman Scott will consider a markup and what changes he might make to the House’s product. In addition, there are already efforts to amend the GENIUS Act, with a large-scale coalition of banks weighing in to strike Section 16(d), a provision that authorizes banks to conduct money transmissions with a stablecoin subsidiary. How the law treats uninsured banks is at issue and there is worry about a potential regulatory/supervisory gap with respect to deposits. According to the coalition, the preemption of state law “weakens vital consumer protects, creates opportunities for regulatory arbitrage and undermines state sovereignty.” The Senate has not yet indicated whether they’ll consider revisions to GENIUS when they take up CLARITY, but we do expect a Banking markup in the fall and potentially Senate floor time given the White House’s keen interest in signing a market structure bill before the end of the year.
Political Update. We are still over a year out from the midterm elections, but there are a few important storylines to keep an eye on when evaluating control of the US House and potential policy implications of divided government post-2026. Notably:
- Polling. Trump’s polling numbers remain steady despite the negative press on Epstein, tariffs, and ICE deportations. Trump’s current Real Clear Politics (RCP) approval average of 45.9% is two points higher than that of Obama or Bush at this point in their respective second terms. CNN has Trump’s approval rating at 44 percent in August, seven points higher than where he was at this point in his first term. As such, Trump does not appear to be a drag on Republican candidates, quite the opposite. Meanwhile, the Democratic Party’s RCP average approval stands at a net 24 percent negative rating, continuing the party’s historically low trend. Potential warning signs for Trump and Republicans, however, include softening approval numbers on the economy (affordability) and immigration (deportations). Inflation remains the top political issue for voters, so any meaningful uptick there would cause problems for congressional Republicans heading into the midterms.
- Fundraising. The National Republican Congressional Committee (NRCC), the official campaign arm of House Republicans, has out raised its Democratic counterpart by roughly $3 million YTD. While this gap is seemingly minuscule, it does reverse a four-year trend of House Democrats out-raising House Republicans and signals where donors are putting their money. The same trend can be seen in the parties’ corresponding super PACs. And then there’s the one thing Democrats don’t have: an incumbent president who is term-limited but is still raising sizable amounts of campaign cash. Trump’s super PAC raised $177 million in the first six months of the year and has $196 million COH. Combined with his various other accounts, Trump has nearly $300 million COH. That number will only continue to grow and has no counterpart on the Democratic side.
- Redistricting. Republican efforts at redistricting have grabbed the headlines though the media has recently turned critical of Democrats’ gerrymandering. The aggressive approach by the President and his political team caught Democrats largely flat footed and with few good options. The redrawn Texas map has now passed the Texas State Senate and the State House will be called into a second special session by Governor Greg Abbott (R) following conclusion of the current session this Friday. The result is likely five new Republican districts in Texas. Similar efforts are well underway in Florida, Missouri, and Ohio, though Indiana and New Hampshire are less likely. Showing how unprepared Democrats were, California will require a ballot measure to overturn the state’s independent commission and New York has its own state supreme court challenges. Meanwhile, Illinois and other Blue states have already cut Republican voters’ representation down to the bone. In other words, it’s highly likely that redistricting will result in a net gain of 5-10 House Republican seats, potentially offsetting any midterm headwinds they might face.
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