Thought of the Week:
How many group text chains are you on? I’ve lost count. I’ve got family, extended family, work, golf, high school, college, neighborhood, fantasy football, and other group text message streams on my phone(s). I’ve got multiple group chains in some of these areas, and some groups are just subgroups of other groups. While group texts exist on my work phone, others are contained on my personal phone, and still others are linked to both. Outside of those that live on my work phone, rarely do these group messages vier into extended discussions on politics. And this is how I know we’re reaching the beginning of the end of the government shutdown. Earlier this week, apart from a few comedic interludes, one non-political group message stream focused on politics for over an hour. Up until then, despite being made up of those living in the Washington, D.C., suburbs, the group had not broached the government shutdown. This meshed with what we had been hearing from congressional offices; prior to this week, several staffers had told me the same story, “Yeah, we’re hearing from lobbyists, trade associations, and interest groups, but believe it or not, we’re just not hearing too much from our constituents on this.” That the government shutdown was now on my group text’s radar also matched with the vibe shift we’ve started to feel downtown on Capitol Hill. In fact, Bloomberg Government reported that senators say they are starting to see a shift in talks among the rank and file, if not leaders, that could help end the shutdown; that House GOP leaders are expecting the shutdown to get “real” next week; and that even the Senate’s daily opening prayer reminded lawmakers of the urgency: “We continue to pray, without ceasing, for an end to this shutdown. Use our senators to make this dream become a reality,” Senate Chaplain Barry Black said earlier this week. Consultants to the Washington office also say they see signs brewing as senators from both parties privately sound more positive about the prospects of a near-term deal. And, just yesterday, a Democratic congressman from Southern California told me privately that he and his colleagues have begun to hold informal talks on the sidelines. While the contours of a potential dear are the same as they ever were—Democratic votes for a funding measure, in exchange for Republicans promising a vote on Affordable Care Act subsidies and a bipartisan commitment to move the appropriations process forward—with Nov. 21 just three weeks away, lawmakers will have to extend the end-date for legislation to keep the government open; GOP leaders are eyeing a continuing resolution that would stretch somewhere between mid-January to March. While expectations are that the shutdown will end in the November 7-17 range, the discussion of politics ended on my group text with the realization that “hey, we’re writing Jamie’s blog for him.” Thanks for the assist CT and PM.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
The Trump Administration Will Reconstruct Tariff Wall if Supreme Court Strikes It Down. The Supreme Court will rule between the end of this year and next June on the legality of President Trump’s tariffs imposed using the International Emergency Economic Powers Act (IEEPA); legal observers remain divided on the likely outcome, and partial repeal of the IEEPA tariffs is a distinct possibility. In the absence of emergency powers, the White House would likely turn to Section 122 authorities to impose 15% universal tariffs for a period of 150 days, giving the administration time to complete additional Section 301 and 232 investigations to rebuild the tariff wall; in the most likely scenario, officials would seek to use Section 301 investigations to replicate tariff rates laid out in framework deals, with countries lacking deals receiving a 15% minimum. Relative to today, the average effective tariff rate (AETR) would likely fall by about three percentage points under Section 122, and by between 2.5-8 points under different post-Section 122 scenarios; any cut in the effective rate would significantly reduce federal revenues, raising questions about the sustainability of the U.S. debt trajectory.
Inside the EPA Says Proposed Climate Endangerment Repeal will Stoke Key Questions for Industry. The EPA’s proposed repeal of the Obama-era climate change endangerment finding, which underlies most federal government greenhouse gas controls, presents key questions for industry groups who generally expect to benefit from the Trump administration’s deregulatory push. While utilities and automakers do not oppose the Trump rollback, they argue that any repeal could create legal and regulatory uncertainties that may thwart future investments. At the same time, environmentalists contend the EPA failed to fully account for the societal costs of its proposed repeal, raising doubts about the legal basis for withdrawing the finding and an accompanying proposal to strike down vehicle GHG rules. Such arguments are among the thousands of comments the EPA has received in response to its proposal to repeal the endangerment finding and GHG rules for light- and medium-duty vehicles. Although the endangerment finding was based on authority in the Clean Air Act, which governs new motor vehicles, the EPA also used it as the basis for rules governing power plants and other sectors. While the Trump EPA’s plan to repeal the finding and associated vehicle rules will be the focus of a renewed legal battle, the Edison Electric Institute (EEI) contends EPA’s proposed repeal of the rules, and underlying endangerment finding, could also impact planning and construction of new power plants. The group says that EPA’s GHG standards play an important role in displacing common lawsuits and providing the regulatory certainty needed to build new plants. EEI’s comments underscore the practical uncertainties around what might happen in other industries should the agency finalize its endangerment plan, and it survive anticipated court challenges. While generally supportive of the Trump agenda, EEI is asking EPA to establish “a durable regulatory framework” to help bring new natural gas generation capacity and critical infrastructure online. Though the group does not explicitly oppose EPA’s endangerment plan, they say issuance of durable rules would advance interests by avoiding a patchwork of state rules and increased litigation based on environmentalist and public health claims that the proposed endangerment repeal ignores trillions of dollars in societal harms.
Observatory Group Analyzes Initial U.S.-Japan Project and Critical Minerals Agreement. President Donald Trump and new Japanese Prime Minister Sanae Takaichi had a successful introductory meeting in Tokyo yesterday. Afterwards, two important documents were released. The first was from the Japanese Ministry of Economy, Trade and Industry (METI). This document is an outline of potential initial investments in the US under the Japan/US strategic investment memorandum of understanding. The second is a “framework” for securing the supply of critical minerals, including rare earths, through mining and processing. We believe the METI document is the more revealing, as it lists specific Japanese companies interested in making investments into the US and US multinationals such as Westinghouse reaching out to secure Japanese partnerships for their preferred projects. This coordination between the Japanese government including METI, the US government and companies based in both countries, is creating a sort of clearinghouse of joint venture interests. That is a highly positive development that will help projects fit market interests, rather than relying solely on government priorities. Another key takeaway is that METI has been focused almost exclusively on just three sectors: energy, AI infrastructure, and mining/processing. It is also noteworthy that these three sectors are also cornerstones of China’s agenda announced in its Fourth Plenum, denoting a joint US/Japan effort to keep pace with China. But investment in other sectors such as autos and batteries should also be warmly welcomed down the road.
“Inside Baseball”
Shutdown to Extend Into November, Political Pain Coming for Democrats? Some Democrats believe victories in the November 4 gubernatorial elections in New Jersey and Virginia—plus California’s redistricting ballot proposition—will force Republicans to negotiate with them to end the shutdown; in fact, the belief is that wins at the ballot box will compel President Trump to cut a deal on the Affordable Care Act’s (ACA) premium tax credit (PTC) extension. However, Congressional Republicans are showing zero movement after more than a month. With the White House’s full support of their “open the government first, then maybe talk” strategy, they are unlikely to change their position after the elections happen, regardless of the results. The prevailing view is that the shutdown will end due to pressure on the Democrats arising from mounting federal service disruptions, and not from the Republicans conceding to policy demands. Public pressure from lapsed federal services—most notably, the Supplemental Nutrition Assistance Program (SNAP) that an estimated 42 million Americans use—will force Democrats to end the impasse. Because it will take additional time for the pain to become unbearable for Democrats, the shutdown will likely go on until mid-November. The most likely endgame: once public pressure builds, Senate Democrats will secure a symbolic vote on healthcare that fails; then, they will provide enough Democratic votes to overcome the 60-vote filibuster for a clean Continuing Resolution (CR) to pass. The PTC policy fight will be delayed pending the length of any CR.
In Other Words
“It was an amazing meeting. From zero to 10 (with 10 being the best) the meeting was a 12,” President Trump describing his meeting with Chinese President Xi Jinping.
“I would like to realize a new golden age of the Japan-U.S. alliance, where both Japan and the United States will become stronger and also more prosperous,” Japanese Prime Minister Takaichi.
“The White House cannot simply be a museum to the past. Like America, it must evolve with the times to maintain its greatness. Strong leaders reject calcification. In that way, Trump’s undertaking is a shot across the bow at NIMBYs everywhere,” the Washington Post editorial board, writing in support of President Trump’s teardown of the East Wing to build a new ballroom.
Did You Know
Japanese Prime Minister Sanae Takaichi is an avid fan of horse racing, heavy metal music, and sports teams such as Gamba Osaka and the Hanshin Tigers. The prime minister, known to play the drums and piano, also holds the title of Sommelier d’honneur, practices judo and karate, and scuba dives. A car enthusiast, her 1991 Toyota Supra A70 2.5GT Twin-Turbo Limited, which she drove to work for over 20 years, is currently on display in a Toyota dealership museum. Takaichi is also known to be a manga lover, being particularly fond of Bari Bari Densetsu and Kaji Ryusuke no Gi.
Graph of the Week
Consumers Still Uneasy About the Economy. While President Trump is in Asia, back home the latest data reflects pessimism on home prices, consumer sentiment, and more. In fact, U.S. consumer confidence fell in October for a third straight month on dimmer views about both the economic outlook and labor market. The Conference Board’s gauge decreased 1 point to 94.6, its lowest since April. Expectations for the next six months also fell, while confidence remains stuck below levels seen last year as consumers fret about the labor market and the cost of living.
