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Winners and losers as America at last reaches a budget deal

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“General Hospital” has the distinction of running longer than any soap opera in American television history. Yet the months-long budget melodrama in Washington, DC, which mercifully concluded on March 23rd, at times felt destined to become almost as much of a fixture of American life as the medical serial that debuted in 1963.

The 2024 fiscal year began nearly six months ago, but only now has Congress managed to pass a long-term budget deal to fully fund the federal government through the remainder of the fiscal year. Kevin McCarthy was ousted as House speaker in October 2023 after preventing a lapse in government funding. Mike Johnson, his successor, allowed three more “continuing resolutions” to avoid unnecessary government shutdowns, but the delays culminated in an agreement that differed little from what the White House and Congress had agreed to in principle nearly a year ago.

The $1.2trn package just passed covers about 75% of government spending. (The remainder already had been authorised in a bill signed into law earlier in the month.) The latest legislation cleared the Republican-controlled House on Friday March 22nd on a 286-134 vote, while the Democrat-led Senate approved it, after much last-minute haggling, in the early hours of Saturday morning, by 74-24. The bill, more popular with Democrats than Republicans, marginally reduces government spending but on its own won’t significantly alter America’s fiscal destiny.

“It’s good to see Congress put something in place to control spending levels for one year,” says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan non-profit group. That doesn’t mean members of Congress should be patting themselves on the back. “There’s so much more to be done, and they are all the things that politicians are saying they won’t do, including raising taxes, fixing Social Security and fixing Medicare.”

Underperformance has never prevented legislators from claiming victory anyway. Democrats and Republicans alike will be happy to take credit for a 5.2% salary increase for military personnel, and even some Republicans can applaud 12,000 new special immigrant visas for American allies in Afghanistan attempting to flee Taliban rule. The bill also includes policy prizes that fall under neater partisan categories.

Mr Johnson won new money for Immigration and Customs Enforcement to expand immigration-detention capacity and pay for 22,000 border-patrol agents. Republicans also secured a one-year ban on funding for the UN Relief and Works Agency, which provides aid to Palestinian refugees, along with a 6% reduction in broader spending on foreign programmes. All are real wins for a party increasingly supportive of Israel, sceptical of immigration and isolationist in its global outlook.

Democrats, however, blocked a host of other policies popular among Republicans, such as anti-abortion provisions. Members of Mr Biden’s party are also touting $1bn for a climate-change programme at the Pentagon and another $1bn for child care and Head Start, an education programme for young children from poor families. This mixed outcome in any deal ought to be expected, given America’s divided government, but Republican hardliners were not impressed.

Chip Roy, a congressman from Texas, acknowledged after the bill was released that Republicans would not get everything they wanted when Democrats controlled the White House and Senate. He opposed the measure regardless. “Any Republican who votes for this bill OWNS the murders, the rapes and the assaults by the people that are being released into our country,” Mr Roy said, citing its insufficiently harsh immigration provisions. “A vote for this bill is a vote against America.”

Mr McCarthy lost his job after years of enduring this sort of over-the-top rhetorical abuse, but his replacement has largely followed his lead. The final deal had been negotiated behind closed doors between Mr Biden’s team and congressional leaders. Mr Johnson listened to the hardline Freedom Caucus, to which Mr Roy belongs, but ultimately ignored the group. To avoid a government shutdown, he even ignored a rule that previously required the House not vote on a bill until 72 hours after its text was released.

As a relatively unknown congressman, Mr Johnson was one of the most conservative members of the lower chamber. He is still deeply conservative, but the price of power is recognising the need to compromise. The provisions in this bill will expire at the end of September, weeks before the presidential election. In all likelihood a short-term spending bill will be cobbled together to carry legislators through campaign season, to avoid a messy spending fight just as Americans get ready to vote.

For now, Mr Johnson has said that he would turn his focus to providing aid for Israel, Taiwan and Ukraine. He previously declined to take up a Senate bill that paired military assistance with immigration reform, and some members of the House are working on a strategy to force a vote on the issue. If Mr Johnson supported assistance for Ukraine after cutting a deal with Democrats, could he meet the same fate as Mr McCarthy?

Marjorie Taylor Greene, a Republican congresswoman from Georgia, filed a “motion to vacate” the speakership after the legislation passed, calling it a “warning”. There is no guarantee that the resolution will be taken up, and Mr Johnson appears more secure than Mr McCarthy did before his fall in October. “The funny thing is that the reason he might survive is that there’s no one else,” says Yuval Levin of the American Enterprise Institute, a conservative think-tank. “This job, which is normally pretty desirable, is so undesirable that nobody wants to fire the current guy, because nobody wants to take it.”

Economics

China targets U.S. services and other areas after decrying ‘meaningless’ tariff hikes on goods

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Dilara Irem Sancar | Anadolu | Getty Images

China last week announced it was done retaliating against U.S. President Donald Trump’s tariffs, saying any further increases by the U.S. would be a “joke,” and Beijing would “ignore” them.

Instead of continuing to focus on tariffing goods, however, China has chosen to resort to other measures, including steps targeting the American services sector.

Trump has jacked up U.S. levies on select goods from China by up to 245% after several rounds of tit-for-tat measures with Beijing in recent weeks. Before calling it a “meaningless numbers game,” China last week imposed additional duties on imports from the U.S. of up to 125%.

While the Trump administration has largely focused on pressing ahead on his tariff plans, Beijing has rolled out a series of non-tariff restrictive measures including widening export controls of rare-earth minerals and opening antitrust probes into American companies, such as pharmaceutical giant DuPont and IT major Google.

Before the latest escalation, in February Beijing had put dozens of U.S. businesses on a so-called “unreliable entity” list, which would restrict or ban firms from trading with or investing in China. American firms such as PVH, the parent company of Tommy Hilfiger, and Illumina, a gene-sequencing equipment provider, were among those added to the list.

Its tightening of exports of critical mineral elements will require Chinese companies to secure special licenses for exporting these resources, effectively restricting U.S. access to the key minerals needed for semiconductors, missile-defense systems and solar cells.

In its latest move on Tuesday, Beijing went after Boeing — America’s largest exporter — by ordering Chinese airlines not to take any further deliveries for its jets and requested carriers to halt any purchases of aircraft-related equipment and parts from U.S. companies, according to Bloomberg.

Having deliveries to China cut off will add to the cash-strapped plane maker’s troubles, as it struggles with a lingering quality-control crisis.

In another sign of growing hostilities, Chinese police issued notices for apprehending three people they claimed to have engaged in cyberattacks against China on behalf of the U.S. National Security Agency.

Chinese state media, which published the notice, urged domestic users and companies to avoid using American technology and replace them with domestic alternatives.

“Beijing is clearly signaling to Washington that two can play in this retaliation game and that it has many levers to pull, all creating different levels of pain for U.S. companies,” said Wendy Cutler, vice president at Asia Society Policy Institute.

“With high tariffs and other restrictions in place, the decoupling of the two economies is at full steam,” Cutler said.

Targeting trade in services

China is seen by some as seeking to broaden the trade war to encompass services trade — which covers travel, legal, consulting and financial services — where the U.S. has been running a significant surplus with China for years.

China Beige Book CEO: U.S. needs to articulate what they want from China

Earlier this month, a social media account affiliated with Chinese state media Xinhua News Agency, suggested Beijing could impose curbs on U.S. legal consultancy firms and consider a probe into U.S. companies’ China operations for the huge “monopoly benefits” they have gained from intellectual-property rights.

China’s imports of U.S. services surged more than 10-fold to $55 billion in 2024 over the past two decades, according to Nomura estimates, driving U.S. services trade surplus with China to $32 billion last year.

Last week, China said it would reduce imports of U.S. films and warned its citizens against traveling or studying in the U.S., in a sign of Beijing’s intent to put pressure on the U.S. entertainment, tourism and education sectors.

“These measures target high-visibility sectors — aviation, media, and education — that resonate politically in the U.S.,” said Jing Qian, managing director at Center for China Analysis.

While they might be low on actual dollar impact given the smaller scale of these sectors, “reputational effects — such as fewer Chinese students or more cautious Chinese employees — could ripple through academia and the tech talent ecosystem,” he added.

Nomura estimates $24 billion could be at stake if Beijing significantly step up restrictions on travel to the U.S.

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Travel dominated U.S. services exports to China, reflecting expenditure by millions of Chinese tourists in the U.S., according to Nomura. Within travel, education-related spending leads at 71%, it estimates, mostly coming from tuition and living expenses for the more than 270,000 Chinese students studying in the U.S.

Entertainment exports, encompassing films, music and television programs, accounted for just 6% of U.S. exports within this sector, the investment firm said, noting that Beijing’s latest move on film imports “carries more symbolic heft than economic bite.”

“We could see deeper decoupling — not only in supply chains, but in people-to-people ties, knowledge exchange, and regulatory frameworks. This may signal a shift from transactional tension to systemic divergence,” said Qian.

Can Beijing get more aggressive?

Analysts largely expect Beijing to continue deploying its arsenal of non-tariff policy tools in an effort to raise its leverage ahead of any potential negotiation with the Trump administration.

“From the Chinese government’s perspective, the U.S. companies’ operations in China are the biggest remaining target for inflicting pain on the U.S .side,” said Gabriel Wildau, managing director at risk advisory firm Teneo.

Apple, Tesla, pharmaceutical and medical device companies are among the businesses that could be targeted as Beijing presses ahead with non-tariff measures, including sanction, regulatory harassment and export controls, Wildau added.

Shoppers and staff are seen inside the Apple Store, with its sleek modern interior design and prominent Apple logo, in Chongqing, China, on Sept. 10, 2024.

Cheng Xin | Getty Images

While a deal may allow both sides to unwind some of the retaliatory measures, hopes for near-term talks between the two leaders are fading fast.

Chinese officials have repeatedly condemned the “unilateral tariffs” imposed by Trump as “bullying” and vowed to “fight to the end.” Still, Beijing has left the door open for negotiations but they must be on “an equal footing.”

On Tuesday, White House press secretary Karoline Leavitt said Trump is open to making a deal with China but Beijing needs to make the first move.

“In the end, only when a country experiences sufficient self-inflicted harm might it consider softening its stance and truly returning to the negotiation table,” said Jianwei Xu, economist at Natixis.

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Economics

Donald Trump’s approval rating is dropping

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Economics

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