This Week: The House passed a non-binding resolution directing the end of US military involvement in the civil war in Yemen. The Senate debated and passed legislation to reauthorize the Natural Resources Management Act, which provides funds for national park maintenance, wildlife refuges and public park lands. The Senate also approved the nomination of William Barr to serve as Attorney General. Both chambers also passed legislation to provide funding for nine federal departments and several agencies for the remainder of the fiscal year and avert another partial government shutdown.
Next Week: Both the House and Senate will be out of session to celebrate President's Day.
Financial Services Issues
Data Protection Prelude. Senate Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) this week issued a joint request for information on how financial companies and regulators collect, use and protect sensitive consumer data. The request, which is intended to inform the Senators’ efforts to develop legislation on the issue, asks for feedback on the need for potential policy changes. The Senators’ questions delve into such issues as the appropriate standards for data breach notification, the level of disclosure of information collection practices, and the degree to which consumers should control how collected data is used. With the extensive 2017 data breach at Equifax still looming large, a key focus of the inquiry is credit reporting agencies, which will be grilled later this month at a House Financial Services Committee hearing. Senators Crapo and Brown sent a similar joint request for proposals in the run-up to the development of regulatory relief legislation, although they parted ways on that effort as Chairman Crapo ultimately teamed up with a group of moderate Democratic Senators to advance that bill into law. While data security is a high priority of Chairman Crapo and an area where there is bipartisan interest, legislative efforts will face an uphill climb given potential differences on federal preemption and on the extent and scope of reforms.
Other Issues in Play
No Shutdown. After some drama this week that put a shutdown solution in doubt, a bipartisan group of lawmakers agreed on a funding package to keep nine departments and other government agencies open beyond today, when current funding expires. This issue reminds Americans of the great divide that separates the two major political parties with regard to national immigration policy, though there are clearly areas of agreement if the two sides were more willing to embrace them. While funding for the current fiscal year is now on the verge of being resolved, the immigration debate likely will rear its head later this year as Congress tries to pass legislation to fund the government over the next fiscal year. At least Washington can move on to some other things for the time being.
Emergency Declaration Coming? It appears so given President Trump's determination to build the extended wall, with or without direct congressional funding in the current bill. When he declares an emergency and identifies other federal funds to pay for the wall, two things will happen. One, Democrats will challenge it in the courts, likely tying the funding up for the foreseeable future. Two, it will trigger a vote in the House and Senate to disapprove the emergency action. That measure would certainly pass the House and probably the Senate too, where only a majority of votes are needed (rather than the 60 vote threshold required for most Senate legislation). The President would then veto the legislation, which the House would probably not be able to overturn with a two-thirds vote. All of this action ensures that immigration will stay in the news and be a focal point in Washington for at least the next few weeks. It will be a complicated bureaucratic exercise to try to divert funds for the wall through the declaration of an emergency. While this effort is unlikely to result in funding for new wall construction in the short term, it does allow the President to demonstrate to supporters that he is going to the full extent to try to follow through on a major campaign promise. It also allows Democrats to show their unified resistance in opposing it. Bottom line: no new wall funding but both sides will placate their base of supporters by standing tall on the issue.
US-China Trade Issues. US and Chinese negotiators met throughout this week with no apparent breakthrough as a March 1 deal deadline looms. We have repeatedly stressed the difficulty of reaching a substantive deal by March 1. If a deal occurs by then, we believe it will be very modest and not address the wider range of issues with which the US has expressed concerns, including intellectual property theft, forced technology transfers and joint venture arrangements. Many lawmakers are concerned that President Trump seems too eager for a deal and will settle on a limited agreement. Indeed, both Trump and Chinese President Xi seem eager for a deal, but we do not underestimate the difficulty China will have in making reforms that seem to run counter to their long-term global economic strategy. If Trump and Xi have a phone conversation in the next week, there is a good chance they'll extend the March 1 deadline. Markets will like that, but after that, it's anyone's guess what will happen. Both sides want a deal without giving much up, and both countries' economies are increasingly feeling the strain from higher tariffs. One side will eventually cry "uncle," and it's likely we will see a breakthrough only after that happens.
New Tariffs on Foreign Auto Imports? As US-Chinese negotiations reach a critical point, the US Commerce Department is scheduled to release recommendations to President Trump either today or tomorrow on whether to impose increased tariff levels on imported automobiles and auto parts based on national security concerns. The recommendations will be sent to the President, and the President will have 90 days to accept, reject or revise them. We believe the recommendations will include higher tariff levels on these imports but that the President will not act on them, at least now. Rather than implementing new tariff increases, the President is more likely to defer the recommendations while he tries to resolve other trade issues, including those with our allies who would be affected by new tariffs on the auto sector. Higher auto tariffs would be especially damaging to Japan, South Korea and the EU. The President can then keep these higher tariff options in his back pocket as he deals with trade partners on a wide variety of issues and will use them as leverage as needed.
Green New Deal. We have received a number of inquiries about the "Green New Deal" (GND) recently offered with much fanfare by Congresswoman Alexandria Ocasio-Cortez (D-NY). It is important to note that this is a resolution that sets out a list of goals and calls for action to meet those priorities; it does not specifically prescribe how to meet those goals. This should be viewed as a first step in Congressional Democrats' efforts to try to address climate change. The substance will be found in the policy proposals that Democrats lay out over the coming weeks and months to implement the GND. The goals have major ramifications for the economy and energy use by virtually every American. As such, it will be the subject of much debate over the next two years. Republicans will use it as a poster child for the overreach of House Democrats and will attack it for decimating the energy industry as we know it today. None of the solutions touted by the GND proponents will be enacted this year since the Senate will block anything the House passes, but these issues will linger in the political arena for a long time and will be a factor in the 2020 presidential election.
Gun Control. House Democrats noted the one-year anniversary of the tragic Parkland, FL school shooting and passed legislation out of a committee that imposes universal background checks for firearm purchases. This bill will very likely pass the full House in the next few weeks. Notably absent from the legislation was a provision banning semiautomatic weapons, long a goal of gun control advocates. Such a bill could be considered later. Momentum for stricter gun control measures ebbs and flows around school shooting and other tragedies involving guns. While the bill passed this week has some degree of bipartisan support, it is very unlikely to move forward in the Senate. The lobbying influence of gun owners has weakened a bit over the last few years, but it is still significant enough to defeat most of the gun control measures that Congress will debate this year. Separately, the Trump administration initiated a ban on bump stocks, which transforms semi-automatic firearms to fully automatic ones, and this will go into effect in March. Various states also imposed some form of gun restrictions last year. Gun control legislation always gets a lot of media attention, but don’t expect Congress to pass any final measures that become law this year.
The Final Word
House Republicans Back in the Majority? Despite a fairly healthy Democratic majority in the House following last year's mid-term election results, House Republicans believe they can win back the majority in 2020 if a couple of things work in their favor. As of today, they need to flip 18 seats to reclaim the majority, well within the average number of pick-ups that one side or another has over a given election cycle. Today, 31 Democrats hold districts won by President Trump in 2016, including 13 that President Trump won by more than six points. These seats are ones Republicans will target as part of their planned comeback. Of course, their success will largely depend on how the President does in his re-election. The better he does, the better Republican candidates will do and vice versa. Democrats' ability to govern in the House will also be a factor. We currently do not predict a Republican takeover of the House in 2020, but the relatively close numbers suggest it is a real possibility.