Thought of the Week:
It’s week 14 of the NFL season, which means it’s crunch time for anyone with a fantasy football team. Most fantasy league playoffs begin next week; so, this weekend offers fantasy owners with their last best chance to position themselves for their league crown. Key to deciding who one should start, or sit, this week are the NFL’s injury reports. Information about who is, or isn’t, likely to play is particularly valuable to fantasy team owners…and/or anyone making a friendly wager on a game. Injury reports don’t provide mere “static” information about who will play and who won’t play, but are “dynamic” in that they’re designed to create as much transparency as possible. Each NFL team must issue: (1) Practice Reports that provide descriptions of a player’s injury status and how much he participated in practice during the week; (2) Game Status Reports that offer descriptions of a player’s availability for the club’s next game; and (3) In-Game Injury Reports that state any in-game injuries as soon as they become available. What’s more, clubs must list injured players as either questionable, doubtful, or out for the upcoming game. Just as NFL injury reports provide deep insight into how individual players and teams might perform, federal government analysts use “static” and “dynamic” scoring to gauge the effect of a potential policy change or new legislation. Dynamic scoring is a method of evaluating the fiscal impact of a policy change by considering its potential indirect effects on the economy, including changes in behavior by individuals and businesses. By contrast, static scoring only calculates the direct, immediate impact of a change, essentially assuming no change in economic activity due to the policy shift will occur. In short, dynamic scoring includes potential “ripple effects” of a policy change, while static scoring only looks at the initial impact. For example, if a policy proposes cutting corporate taxes by 1%, static scoring would simply calculate the direct decrease in government revenue based on current corporate profits without considering potential increases in investment or economic growth that might arise from the tax cut. Dynamic scoring, on the other hand, would estimate the potential increase in corporate investment and economic growth resulting from the tax cut, which could lead to higher future tax revenue even though the initial tax cut reduces immediate revenue. As this Congress grapples with reaching a continuing resolution, and the next Congress will have 2025 appropriations, a budget resolution, extension of the Tax Cuts and Jobs Act (TCJA), and possibly two reconciliation bills on its plate, it will be important to understand whether scoring of any potential legislation was made on a dynamic or static basis. Because dynamic scoring incorporates likely follow-on macroeconomic effects of a policy change, most analysts believe it is preferable to use where possible and appropriate. And when policy changes are large and more likely to have consequential macroeconomic effects, dynamic scoring can help guide policy development. However, with record debt and deficit levels, dynamic scoring should not be used as a license to engage in massive new borrowing. Just as the NFL uses impartial referees to ensure that the rules of the game are adhered to, dynamic scoring of federal policy should come from neutral scorekeepers like the Congressional Budget Office or Joint Committee on Taxation to ensure it is not used as a tool to make unrealistic economic growth or revenue predictions to justify legislation.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Center for Strategic and International Studies’ (CSIS) Analysis of China’s Stringent Critical Minerals Export Restrictions on the U.S. Earlier this week, China announced its most stringent set of export controls yet on critical minerals in response to an escalating tech trade war between the United States and China. The economic and national security implications are significant given the importance of these minerals to semiconductors and defense technologies. The new minerals export restrictions were announced on the heels of the Biden administration’s latest crackdown on China’s semiconductor industry. It marked several firsts in the U.S.-China tech war—the first time Chinese critical minerals export restrictions were targeted exclusively at the United States and the first time restrictions on critical minerals were a direct response to restrictions on advanced technologies. Beijing’s rapid retaliation against U.S. restrictions on advanced technologies suggests that critical mineral supply chains will be a central battleground in the accelerating tech trade war, which may escalate further under a more hawkish incoming U.S. administration.
Eurasia Group Says U.S. Steel Purchase is Dead if President-elect Trump is the Decider. President-elect Trump recently reiterated his campaign statement that he would block the purchase of U.S. Steel by Nippon Steel if the deal is still pending review once he is inaugurated. The announcement—like other recent policy announcements made on Truth Social—largely puts to bed any hopes that the ever-moveable Trump would change his mind on the deal with the election in the rearview mirror. The Committee on Foreign Investment in the United States’s (CFIUS) investigation into the national-security impact of the deal is expected to be completed by the end of the month, with President Biden deciding on approval or a further extension of the review process for 15 days. A further extension, or non-action on the investigation, would leave the deal’s fate in Trump’s hands; the best hope for approval is if the Biden administration reverses its longtime position and accepts the deal on President Biden’s way out the door. Blocking the deal will be a major disappointment for the Japanese government. After months of taking a hands-off approach to the politically sensitive deal, Prime Minister Ishiba Shigeru sent a letter to President Biden urging him to approve the deal before he left office.
Observatory Group Outlines Two Scenarios for the Upcoming U.S.-China Trade Negotiations. Critical minerals restrictions aside, following President-elect Trump’s threat of 10% additional tariffs on Chinese goods, Beijing’s immediate response has been well-measured, indicating a willingness to resolve trade disputes through positive dialogue. While Chinese authorities are largely still in a wait-and-see mode, there are two primary scenarios for the upcoming bilateral negotiations:
- Scenario I: The U.S. takes an incremental approach with a small increase in tariffs, e.g., an extra 10% by using the penalty mechanism of the Phase One trade deal. In this case, Beijing will likely respond with a moderate approach, including targeted retaliation measures, a small currency depreciation, and related domestic stimulus.
- Scenario II: The upcoming trade war is as harsh as Trump threatened during his election campaign, with 60% tariffs on all Chinese goods. As a response, Beijing takes a more aggressive approach, pushing up U.S. inflation through export controls and selling off its Treasury holdings. Domestically, policymakers will have incentives to take strong fiscal measures to stimulate consumption.
The odds for Scenario I are 55-60% and Scenario II 40-45%. Expect the first face-to-face re-engagement between Beijing foreign policy and trade representatives and the Trump team to happen before Inauguration Day on January 20, 2025, and the first Trump-Xi summit some time afterwards.
“Inside Baseball”
National Journal on President-Elect Trump’s First 100 Days. While an ambitious agenda and newly unified government could make for a blockbuster first 100 days of President-elect Trump’s second term, the Senate could end up sitting on the counter for longer than usual despite the incoming Republican majority. That’s because the upper chamber will have to go through confirming as many as 1,300 “advice and consent” positions in the new administration. The Senate Armed Services Committee alone is responsible for more than 80 positions, and the Banking Committee has more than 100 in its purview. What’s more, the Senate has been steadily slowing down on approving nominations. The average length of the confirmation process for secretaries, deputy secretaries, and undersecretaries was 73.1 days under President George W. Bush, but swelled to 109.6 days under President Biden. The average process for all Senate-confirmed positions has grown from 69.4 days under President Reagan to 108.2 days under Bush to 192 days under Biden. Given Trump’s penchant for controversial nominees, as well as his transition team’s delay in consenting to typical FBI background checks, his set of initial nominees could eat up even more time than usual. This could leave the House in the driver’s seat on legislation in the early going. House leadership has said on background that right out of the gate, they expect to reintroduce H.R. 1 on energy and H.R. 2 on the border to see what it can get through the Senate.
In Other Words
“I think the vast majority of the members of the Senate will do the same thing: they will give a benefit of the doubt to the president with any one of his nominees. But then we have a constitutional role to play in that we provide advice and consent. And, once again, that can be sometimes advice, sometimes it is consent,” Senator Rounds (R-SD).
“My general view is that at the end of the day, he’s a free trader. It’s escalate to de-escalate,” Treasury Secretary nominee Bessent regarding President-elect Trump’s trade policies.
Did You Know
President George Washington’s first Cabinet had four people in it: Secretary of State Thomas Jefferson, Secretary of Treasury Alexander Hamilton, Secretary of War Henry Knox, and Attorney General Edmund Randolph.
West Virginia will have four different governors in a 10 day span. Sen.-elect Justice (R) is expected to be sworn in on Jan. 3, 2025. He cannot serve as senator and governor at the same time. Since the state doesn’t have lieutenant governors, the state senate president will fill in until Gov.-elect Morrisey (R) is sworn in on Jan. 13. However, the current state Senate President Blair (R) lost his primary and will only serve until Jan. 8. The new Senate president, whoever it may be, will fill in as governor until Jan. 13.
Graph of the Week
The presidential transition process began almost immediately after Election Day. Although there are nearly 4,000 political appointees across the federal government, only a quarter require Senate confirmation. While the Senate typically defers to the president about cabinet choices, several nominations will come under deeper scrutiny through the Senate’s “advice and consent” role.
