Washington Weekly: The Tariff Rage

The Senate confirmed several Trump administration nominees, including John Phelan to serve as Secretary of the Navy. It also passed a resolution to repeal a Biden administration Consumer Financial Protection Bureau (CFPB) rule to cap overdraft fees (see below). The House passed a bill to establish new foreign gift and contract disclosure requirements for colleges and universities and resolutions on energy efficiency standards for commercial refrigerators and walk-in coolers and freezers.

The Senate will continue to confirm Trump administration nominees. The House will vote on a bill to limit nationwide judicial injunctions, a bill to require in-person proof of citizenship to register to vote and two Senate-passed resolutions to repeal CFPB rules on overdraft fees and digital consumer payment platforms.

The Tariff Rage.

Next Wednesday, President Trump is expected to announce his plan on “tariff reciprocity.” This plan will likely serve as the foundation of his overall trade policy in his second term. The original notion of reciprocity was to apply the tariff level imposed on US exports to a given country to imports into the US from that country. The new plan, which is still evolving, instead targets countries that have large trade imbalances with the US. Under the current plan, the US would raise tariffs on 15 countries or trade blocs, including China, the EU, Mexico, Vietnam, Taiwan, Japan, Canada, Switzerland, South Korea, South Africa, Cambodia, Malaysia, Thailand, Indonesia, and India. The higher tariffs will likely not be assessed immediately. There likely will be a months-long implementation process. This will give the targeted countries an opportunity to negotiate with the US on potential agreements. Higher tariffs won’t stop after this initiative as we saw this week with the imposition of higher tariffs on imported automobiles.

TikTok Deadline.

If TikTok does not have a deal to be sold to a US company by April 5, it must cease operations in the US under current law. Various proposals have been made by US entities to buy TikTok. However, we don’t believe any are close to closing. We believe President Trump will try to extend the time needed to make a deal. A bipartisan law passed last year provides the outline for when a deal must be struck, and it’s not clear that time extensions can be granted. That leaves any extension open to a legal challenge. There seems to be potential for a deal to be made, especially in view of Trump’s personal interest in that occurring. But more time is needed to work out specific details. We think ultimately a deal will come together, but it may be tied up in court before it is finalized.

Social Security.

We have received many questions over the past few weeks about whether we expect any changes to Social Security that would affect current beneficiaries. The answer is that we do not anticipate any such changes. While the system will need reforms in the coming years to sustain its long-term viability, there is no appetite now with most lawmakers (or President Trump) to craft a bill containing reforms. Such a bill would need 60 votes to pass in the Senate (these changes aren’t eligible to be considered in the partisan “reconciliation” bills now being considered), and this will not happen. Elon Musk’s and the DOGE’s efforts to scrutinize federal agencies, including the Social Security Administration, will fuel speculation that benefit reductions could occur, but we believe the chances this would occur are close to zero. The system will be reformed eventually, but most of the changes to the program will affect future beneficiaries, not current beneficiaries.

Mutual Funds and Taxes.

A new bipartisan proposal to change the tax treatment for gains in mutual funds was recently introduced in the House. This bill, known as the “Generating Retirement Ownership Through Long-Term Holding (GROWTH) Act,” was introduced by Congresswomen Beth Van Duyne (R-TX) and Terri Sewell (D-AL). It would defer the annual tax on mutual funds held in taxable accounts for reinvested long-term gains. The cap gains tax instead would be collected when an investor actually sold shares. The intent is to give mutual funds similar tax treatment to exchange traded funds. This is an interesting proposal that is getting some attention. Will this attention translate to the proposal being included in this year’s anticipated tax bill? We will be keeping an eye on it, but we remain skeptical that the GROWTH Act will advance this year.

University Endowment Tax.

The 2017 tax law instituted a 1.4% excise tax on the endowments of certain colleges and universities. The tax is imposed on the net investment income of the endowment and captured 56 universities in 2023, generating $380 million in revenue for the government. There are a number of lawmakers who have introduced legislation that would increase that tax as well as expand its application to more schools. The tax was originally instituted as a means to encourage the schools to decrease its tuition rates by allocating more endowment funds for that purpose. The political environment facing some of the schools that have the largest endowments has been challenging with contentious on-campus activities drawing the ire of most Republican lawmakers. We think this tax proposal on endowments has a decent chance of being included in the upcoming tax bill deliberations.

Overdraft Fees.

The Senate this week passed a Congressional Review Act (CRA) resolution on a largely party line basis that would eliminate a rule to cap overdraft fees (fees banks charge when an individual spends more than the amount in his/her bank account) at $5. The rule was finalized by the Consumer Financial Protection Bureau (CFPB) in December and was part of a broader Biden administration agenda against so-called “junk fees.” Under the CRA, Congress can pass resolutions to overturn recent regulatory actions. CRA resolutions have a procedural advantage of only needing a majority vote (instead of a super-majority of 60 votes) to advance in the Senate. House Republicans will look to pass the CRA resolution next week, which will pave the way for the rule’s elimination. The Trump administration and a Republican Congress used the CRA 16 times to overturn Obama-era rules in 2017. The current Congress and Trump administration already have used the CRA to repeal a couple of Biden-era rules, and we expect the rule on overdraft fees to be one of a number of more rules (environmental and financial regulations are key targets) to be eliminated through the CRA process.

Trump and China.

Other than the two countries imposing higher tariff levels on the other, things have been relatively quiet in the US-China relationship over the last few weeks. President Trump mentioned China only sparingly in his address to Congress earlier this month. Our sense is that President Trump wants to negotiate with President Xi on a wide range of issues (especially trade) and hopes for a big agreement later this year. The two leaders negotiated a deal in 2020, but its terms were largely ignored after Trump left office. The desire for a new agreement may evolve soon in public with an announcement that one of the presidents will visit the other in one of the countries or meet at a neutral location. The issues dividing the two countries are growing every day, and both sides seem to believe that they can’t be resolved until the two presidents meet in person, which we believe they will do late this year.

Signal and US National Security.

The use of an encrypted chat app by US national security officials was condemned this week as a threat to US national security and a serious lapse of sound judgment. At a time when Democratic lawmakers and leaders have had a difficult time effectively articulating an alternative to Trump policies with the general public, the Signal fiasco may provide them with a better opportunity. At risk especially seems to be Defense Secretary Pete Hegseth. Democratic Senators opposed Hegseth’s nomination to a job that they thought was beyond his capabilities. They used this week’s miscue as an opportunity to reiterate those views. While Hegseth was just one of over a dozen participants on the chat, he is vulnerable because of his weaker bipartisan standing than some of the other officials on the call. The Signal incident isn’t enough to push Hegseth out the door, but he will be on a shorter leash now and can’t afford involvement in another embarrassing incident.

Wisconsin’s Supreme Stakes.

The Wisconsin Supreme Court race occurring on April 1 will be the first preview for the 2026 mid-term elections in a swing state. The court recently gained a 4-3 liberal majority (while the elections are technically non-partisan, ideologies play a large role), which has been instrumental in rolling back Republican-drawn legislative maps. Both parties have been heavily focused on the high stakes election to decide which way Wisconsin’s Supreme Court ideological bent goes. Wisconsin’s history of razor-thin margins and high-stakes judicial contests makes this race a national proxy fight. Tens of millions of dollars have flooded the airwaves. For Republicans, flipping the seat would be a major victory in a state President Trump narrowly won in 2024, but Democrats see maintaining control as essential for preserving their path to recapturing the House of Representatives in 2026. With partisan fights over redistricting, election law, and executive authority likely to intensify, the outcome will have ramifications far beyond the Badger State