03 February 2025 What to expect in Washington (February 3) A trade dispute looms unless there are successful efforts to forestall Executive Orders (EOs) signed by President Trump on Saturday imposing tariffs on Canada and Mexico beginning on February 4. The Canada EO imposes 25% tariffs on imports, except for lower 10% tariffs on energy resources, which are understood to include crude oil. Duty-free de minimis treatment is also revoked for the affected articles, and no drawback (refund of duties, taxes, and fees on imports) is available. The order said the President may increase or expand the duties in response to any retaliatory measures. The Mexico EO likewise imposes 25% tariffs on imports effective February 4 and includes similar language about potential increases in response to any retaliation. Also similar is the duty-free de minimis treatment being revoked for the affected articles, and no drawback. Canada has announced retaliatory tariffs and Mexico plans to. Kirsten Hillman, Canadian Ambassador to the U.S., said of the tariffs on This Week February 2, "We're really disappointed and we're hopeful that they don't come into effect on Tuesday." She described retaliatory measures: "We will be implementing 25% tariffs on U.S. products. We will go up to $100 billion US dollars-worth of products. We will start with about $30 billion and then we will give notice of the remainder of the products probably for about 20, 21 days and then implement those, if need be, if we haven't found a way out of this situation." A list of products from the United States subject to 25% Canadian tariffs effective February 4 was published on Sunday, following reporting that retaliatory action by the affected nations would tilt toward Republican leaning states. Products include food, alcohol, motorcycles, golf bags, footwear, etc. The Mexican retaliatory plan is expected to be announced today. "One option Mexico's government was also considering is so-called carousel retaliation, which would periodically rotate the U.S. products subject to retaliatory tariffs … " the Wall Street Journal reported. "This generates uncertainty in U.S. export sectors and has a political impact when hitting sectors such as agriculture that are likely to lobby Congress." The potential effects of the tariffs are being talked about by lawmakers, in the press, and will surely be a focus of the Senate Finance Committee nomination hearing to consider Jamieson Greer to be United States Trade Representative (USTR) on Thursday, February 6, at 10 a.m. The New York Times reported February 2, "When Mr. Trump imposed tariffs on China during his first term in the White House, some studies found that part of the cost was passed on to American consumers … Most Republicans in Congress have stayed silent or praised Mr. Trump's tariffs, even as their constituents express anxiety about rising prices." President Trump said on social media February 2: "MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS! Why should the United States lose TRILLIONS OF DOLLARS IN SUBSIDIZING OTHER COUNTRIES, and why should these other countries pay a small fraction of the cost of what USA citizens pay for Drugs and Pharmaceuticals, as an example? THIS WILL BE THE GOLDEN AGE OF AMERICA! WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID." The Administration imposed the tariffs citing "the tide of illicit drugs" coming into the US from these countries as part of the impetus, and some Republicans support that argument. "I think these tariffs are designed to get these countries to change their behavior … " Senate Budget Committee Chairman Lindsey Graham (R-SC) said on Fox News Sunday. "I am glad we're putting everybody on notice that the old way of doing business is over." House Ways & Means Committee Chairman Jason Smith (R-MO) praised the "powerful message that the United States will no longer stand by as other nations fail to halt the flow of illegal drugs and immigrants into our country" and said, "These measures will also bring in billions in new revenue to the U.S. government." Democrats are targeting the potential effects on consumers. On Face the Nation, Senator Mark Warner (D-VA) said even though the President campaigned on lower grocery prices, "I think we might want to call this the Donald Trump Super Bowl tax with the big game coming next week — avocados, tomatoes, beer from Mexico, prices going to go up. The question around cars, I have read already about $3,000 of additional price on cars, up to $10,000 on trucks, because we have actually integrated very well our auto production with Canada and Mexico." A third EO addresses tariffs on certain foreign rivals and the imposition of additional 10% tariffs. And there are more tariffs on the horizon. On Friday, President Trump said he would impose tariffs on the European Union, saying "the European Union has treated us terribly." He also suggested he would put tariffs on semiconductor chips. Additionally, "We're going to put tariffs on oil and gas. That'll happen fairly soon, I think around the 18th of February. And we're going to put a lot of tariffs on steel," the President said. Tax — Plans for the House Budget Committee to begin marking up an FY2025 budget resolution this week — the first step toward unlocking the budget reconciliation process that Republicans want to use to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, and more — seem to be slipping. Once those plans are set and a budget resolution released, more will be known about House Republicans' tax and spending plans. However, following their Florida retreat last week, the path forward for the budget and the reconciliation process remains unclear. Punchbowl News said a delay in the markup is likely, after previously reporting, "There are concerns that a resolution may not have the votes to make it through the Budget panel this week. The committee has multiple House Freedom Caucus members and deficit hawks who could get in the way. And senior GOP sources told us the spending concerns extend beyond just the HFC." One big unanswered question is the baseline for tax cut extensions, either current law or current policy, under which the extensions wouldn't need to be paid for. There have been several reports about Republican plans for potential spending cuts and the potential for Republicans to point to tariff revenue even if it won't be officially counted as an offset. Politico reported that President Trump "needs tariffs to provide some hard-number cash for the treasury … . The [Trump] administration is serious about using duties as a way to raise revenue as Republicans look to extend and expand tax cuts … So they are working to develop a framework for achieving that — one that goes well beyond one-off threats." The Washington Post reported late Friday, regarding the retreat, "GOP leadership earlier this week unveiled a plan to lawmakers that will cut $315 billion in spending over 10 years, but it will add another $325 billion in new spending on Trump's national security and immigration crackdown." Regarding TCJA extensions, the story, while cautioning that plans aren't finalized, said, "The House GOP plans to extend those provisions, plus add other business tax incentives, at a cost of $5.5 trillion over a decade. Because the legislation mainly aims to renew some expiring policies, Republicans will not factor in the cost of the tax cuts in the bill, though they will claim projected increases in federal revenue from much hoped-for private-sector growth" A story in the January 31 Wall Street Journal said, "The coming budget resolution will, roughly, set a cap on the deficit increase by providing spending-cut minimums for some committees and a tax-cut maximum. The net result, the maximum possible deficit increase, is a big number that lawmakers will watch for." The story said Majority Leader Steve Scalise (R-LA) said "one committee alone could have $200 billion to $700 billion in cuts, though that is less than the $1 trillion or more in possible cuts discussed earlier for the Energy and Commerce Committee, which governs Medicaid. While some Republicans say health programs such as Medicaid can be cut back significantly, others are less eager." Politico reported February 2, "Key hard-liners and others on the Budget panel are pushing to outline at least $1 trillion in spending cuts in the blueprint that the committee is supposed to debate this week … Last week, those panel members told senior Republicans they would not vote for a draft budget blueprint similar to what Johnson and committee chairs outlined during a closed-door meeting at the House GOP retreat." Congress — The Senate will hold a procedural vote related to Russell Vought's nomination to be OMB Director at 5:30 p.m. today. That is to be followed by a vote on confirmation of Christopher Wright to be Secretary of Energy and a procedural vote related to the nomination of Pamela Bondi to be Attorney General, as confirmation of President Trump's cabinet nominees continues at a rapid pace. A Senate Finance Committee vote on Robert F. Kennedy, Jr.'s nomination for HHS Secretary is scheduled for Tuesday, February 4 at 10 a.m. The House is back in on Tuesday, February 4, with votes on several Natural Resources Committee bills on the suspension calendar. Thursday, February 6 is a Bloomberg Tax event, "Tax Policy Perspectives in 2025," featuring Lisa Wolski, Managing Director, Washington Council Ernst & Young, and others. Friday, February 7 at 12 p.m. is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."
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