Thought of the Week:
“Elementary, my dear Watson.” “Play it again, Sam.” “I fear all we’ve done is awaken a sleeping giant.” Three famous quotes that were never said by those to whom they are ascribed. The line attributed to Sherlock Homes never appeared in any of the original works authored by Sir Arthur Conan Doyle. Playing Ilsa in Casablanca Ingrid Bergman actually said, “Play it, Sam. Play ‘As Time Goes By.’” And screenwriters for the 1970 movie Tora! Tora! Tora! were the ones who authored the phrase that has been credited to Admiral Isoroku Yamamoto ever since. Just as it was Tina Fey in a Saturday Night Live spoof, not vice-presidential nominee Sarah Palin, who remarked, “I can see Russia from my house,” misquotes and their near blind acceptance in the cultural mainstream point to a very real notion that crosses over into the world of public affairs and political advocacy—once a narrative takes hold, it’s very difficult to refute. Taken a step further, it’s often easier to shape an agenda than to fight one. With Republicans about to control all three branches of government for at least the next two years and an incoming administration calling for major policy changes and an end to the way in which Washington works, public affairs professionals from lobbyists to consultants to PR firms say the time is now for companies to, if not engage in shaping the agenda, at least prepare for what may come next. Recommendations about what should be on corporate to-do lists from now until January 20 have a number of things in common. First, plan for as many scenarios as possible, including those that could positively or negatively impact business. One of the few predictable things about President-elect Trump is that he is unpredictable, and teams should be ready for the erratic, dramatic, even confounding. Second, companies should look to forge alliances where possible. Beyond engaging like-minded trade associations, savvy firms are looking for allies with similar causes and building coalitions that even include media outlets and social media influencers. The Trump administration is pulling many of its members from the private sector and a door might be opened by pushing on networking initiatives. Third, take a holistic approach by engaging not only congressional offices, but also federal agencies and public policy leaders at the state level. Fourth, recognize voters’ changing media diet. Fox News and X finished one, two as the most trusted news sources for Trump voters. And there may be opportunities to get authentic policy messages across to stakeholders through non-traditional outlets such as podcasts, sports, niche communities, and social media. Last, appreciate that although Americans may be divided across the electoral map, there is still plenty they agree on in non-political contexts. Entities across the political spectrum want a more competitive America that offers greater opportunity, grows local jobs, and invests in domestic manufacturing. Through association memberships, lobbying/consultant connections, and public policy subscriptions, the Washington office can assist your business by advising on post-Chevron federal policy, identifying legislative and regulatory windows of opportunity, and leveraging an array of macroeconomic, geopolitical, and legislative data sources.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group Believes Second Trump Administration Will Test Japan on Trade and Defense. Japan’s longstanding bilateral trade surplus in goods with the U.S. will put it on President-elect Trump’s target list in his second term, especially because much of that deficit is in automobiles and auto parts. But Japan will not be a top target. China, Mexico, and Vietnam have larger trade surpluses, and the Japanese surplus has not increased significantly in recent years. Moreover, Japan is the U.S.’s top foreign direct investor and is a key ally in countering China, both of which will help it deflect some of Trump’s harshest demands. However, the president-elect has numerous avenues by which he could target Japan on trade, including an across-the-board tariff and the “reimposition” of steel tariffs that the Biden administration lifted; Japanese firms would also be at risk from Trump’s proposed 25% tariff on Mexico. Defense could become an issue in the bilateral relationship. Trump is unlikely to accept Japan’s plan for spending just 2% of GDP on defense by 2027 as sufficient, and he will likely push Japan to contribute more to support the 55,000 American troops stationed in the country.
Politico Breaks Down Trump’s Tariff Threats. President-elect Trump’s tariff threats can be broadly separated into four different categories with varying timeframes:
1) Potential immediate tariffs: the Trump administration could move quickly after taking office to make good on threats to impose a universal tariff of up to 20% on all imported goods, as well as a 60% tariff on Chinese imports, using authorities under the International Emergency Economic Powers Act (IEEPA) or other existing legislation.
2) Tariffs subject to negotiation: this category includes threats such as a 25% tariff on all goods from Mexico and Canada to pressure those countries to stop illegal migration and fentanyl shipments, as well as a 10% additional tariff on all Chinese goods to pressure Beijing to stop fentanyl shipments. Longer term, there is a threat to impose 100% percent tariffs on countries “that leave the dollar” as a reserve currency; 200% tariffs on autos imported from Mexico; 200% tariffs on China-related automakers that move production to Mexico; and 200% tariffs on companies, like John Deere, that move operations to Mexico.
3) Legislation required: this includes proposals to reduce the corporate tax rate to 15% for domestic manufacturers; to revoke permanent normal trade relations (PNTR) status for China; and to pass the Reciprocal Tariff Act, which would give the president authority to match another country’s tariff rate if it is higher than the U.S. rate on the same product.
4) More details needed: this category includes proposals to phase out imports of all essential goods from China over four years; to restrict Chinese investment in the U.S.; to force China to sell current U.S. assets if national security related; and to withdraw from the Indo-Pacific Economic Framework agreements.
Punchbowl News Reports that GOP Staffers Think the Corporate Rate is Staying Put. 52% of senior Capitol Hill staffers predict Congress will keep the corporate rate at 21%. Senior Republican staffers see the corporate tax rate staying right where it is when the GOP puts together a major tax package next year. While there’s been speculation for months about how companies’ taxes would fare when Congress addresses the expiring Trump tax cuts in 2025, a post-election survey indicates that most GOP aides predict that it will remain at 21%. In fact, 59% of Republican Hill staffers say they think the most likely outcome for the corporate rate will be staying as-is. Another 24% believe their party will cut the corporate rate, and just 3% predict the rate will go up. From a tax perspective, the election result was great news for companies worried about their tax rate. President-elect Trump wanted a big corporate rate cut in 2017, which he got, and he’s floated going lower again. Unlike most of the Trump tax cuts that expire next year, Republicans permanently slashed the corporate rate; so, lawmakers don’t need to touch it now. With pressure from deficit hawks in the GOP and other priorities to spend time on, it makes sense that Republicans are betting on letting the corporate rate be.
“Inside Baseball”
Last Gasp for the Nippon Steel Deal? In a statement earlier this week, a White House spokesperson said of Nippon Steel’s proposed acquisition of US Steel that President Biden’s position “since the beginning” has been that US Steel be “domestically owned and operated” but that he was still awaiting the recommendation of the Committee on Foreign Investment in the United States (CFIUS). Those remarks match press reports that the White House is awaiting the result of the CFIUS review before deciding, and are contrary to a Bloomberg report that said Biden had already decided to kill the deal. CFIUS is expected to complete its review of the national security issues posed by the deal by the end of the month. A further extension—or non-action on the investigation—would hand the decision to President-elect Trump, who has promised to block the deal. While blocking the deal would be a major disappointment for the Japanese government and likely create some tension between the U.S. and Japan, it would not fundamentally undermine the strength of the relationship. Japan has been the U.S.’s top foreign direct investor for the last five years in a row and that streak is likely to continue.
Republicans to Target Telework in Official Washington. While ending federal telework is one proposal from would-be federal efficiency cost-cutters Elon Musk and Vivek Ramaswamy, the idea has also caught lawmakers’ attention. Top appropriators, in both the House and Senate, and conservatives have set aside disagreements on spending in favor of cracking down on remote work for federal employees—a practice that’s rankled Republicans since it grew during the pandemic. Expect legislation to be floated on the issue in the next Congress.
In Other Words
“I can’t guarantee anything. I can’t guarantee tomorrow,” President-elect Trump on whether his tariffs could be inflationary.
“We’ve got to right the ship, and it’s going to mean cuts. It’s going to mean cuts to the 24% of the discretionary spending that we have, and it’s also going to mean looking long-term at the front end of some programs like Social Security and Medicare,” Rep. Alford (R-MO) floating Medicare and Social Security as potential areas of focus for the “Department of Government Efficiency” (DOGE).
Did You Know
Global trade is set to reach a record $33 trillion in 2024, up 3.3% or $1 trillion from last year, according to the United Nations Conference on Trade and Development.
Graph of the Week
While Elon Musk says he’s focused on “spending the public’s money well,” his and Vivek Ramaswamy’s effort to slash $2 trillion from the federal budget will be exceedingly difficult without addressing entitlements. Last fiscal year, the federal government spent more than $6.75 trillion, with more than $5.3 trillion of that going to Social Security, health care, defense, veterans’ benefits, and net interest. Such figures make clear that it’s mandatory spending, not discretionary spending, that’s the main driver of the nation’s debt. Despite the “DOGE” leaders mandate to “cut the federal government down to size,” it’s Congress that has the real power to deliver on spending. With Republicans split, the battle over government funding is poised to continue into next year.
