The House approved legislation supporting the US to remain as a partner to the Paris climate agreement. The Senate confirmed a group of Trump administration nominees.
The House will consider a new $20 billion disaster aid funding bill to help those affected by wildfires, flooding, hurricanes and other natural disasters in various areas and a bill to protect people with pre-existing conditions. The Senate will approve various nominations and possibly consider its own version of the disaster aid funding bill to be taken up in the House.
The House this week overwhelmingly passed the Senior Security Act, which would establish a taskforce within the SEC focused on combatting scams that prey on seniors. The legislation, which has good prospects for becoming law, is indicative of growing concern within Congress about the estimated $3 billion a year of financial fraud on seniors. In recent years, there have been dozens of hearings examining the topic, while a Senate committee has started to produce an annual report on scams targeting seniors. Last year, Congress took concrete action in this area when it passed the Senior Safe Act as part of a broader package of financial reforms. That bill gives financial institutions immunity when they in good faith report suspected fraud against older adults. In the related area of retirement security, Congress also may give seniors greater flexibility when it comes to making contributions and taking required minimum distributions from their retirement plans. These provisions are part of a set of retirement savings reforms that we highlighted in detail in a recent weekly and that will pass the House in the next few weeks.
Trade Deluge Continues.
Trade policy continues to be a focal point of the Washington policy agenda. The following highlights key issues:
Senior US trade negotiators were in China this week for talks, while Chinese negotiators will visit the US next week. This furious pace of negotiations suggests that both sides are nearing a deal. In fact, negotiators will try to reach consensus by the end of next week. Once an agreement is in hand, the two countries will announce a meeting between Chinese President Xi and President Trump at which a final deal will be unveiled. Given the complexity of the issues still under discussion, the timetable may be longer, but we are still optimistic that a final deal will be struck in late May or in June. The final sticking point seems to be how the higher tariffs both governments have imposed will be phased out as a deal is implemented. The ultimate deal will be more modest than what the Trump administration hoped for, but it still will be meaningful. Democrats and Republicans on Capitol Hill will fight over its impact, but the markets should love it.
US-Mexico-Canada Agreement (USMCA).
Mexican President Andres Manuel Lopez Obrador signed into law comprehensive labor reforms that were required as part of the USMCA. This expected action has relevance for the approval process of the agreement in the US. Congressional Democrats and organized labor have identified these reforms as one condition for support of the agreement in Congress. They still have other areas of concern, and the resolution of them will affect the agreement's future. So while this act alone doesn't guarantee that a sufficient number of Democrats will vote for the agreement, it is a step in the right direction. The House is expected to take up the USMCA late this year in what will be a market-impacting vote.
Following initial trade negotiations between lower-level US and Japanese officials a few weeks ago, Japanese Prime Minister Abe and President Trump met this week in Washington to advance that dialogue. With so much currently on the plate of US negotiators (China and the free trade agreement with Canada and Mexico), a deal with Japan can't be assured. Some in the Trump administration want a "skinny" deal that would involve increased trade in goods (but not services), though this approach will be strongly opposed by industry groups in the US. President Trump's primary focus will be to further open the Japanese market to US agriculture products, while the Japanese want to roll back higher US tariffs on steel and aluminum and ensure that threatened tariff increases on automobiles and auto parts are taken off the table. Prime Minister Abe and President Trump will see each other again in May (in Tokyo) and June, so there will be plenty of opportunities for this trade deal to take shape. While the US especially wants a deal to be finalized in the next month or two, our hunch is that the Japanese elections this summer will push a final deal into the fall.
In anticipation of "Infrastructure Week," which begins on May 13, President Trump met with Democratic leaders this week and agreed in principal to the size of a potential bipartisan infrastructure bill -- $2 trillion. No other details for a potential bill were discussed, and no plans to pay for the bill were outlined. There is overwhelming bipartisan support in Congress for a major infrastructure bill but precious little consensus on how to find $2 trillion to pay for it. Until that dynamic changes, no significant infrastructure measure will move forward. There will continue to be cheerleading for an infrastructure package in the coming weeks, but very few people in Washington expect such a bill to advance. President Trump and congressional Democrats could soon suggest ways to pay for it, but after both sides reject the plans of the other, we will then be able to put a fork in this initiative.
Although a $2 trillion bill will not move forward anytime soon, there are other efforts to push infrastructure projects forward this year. The Trump administration's proposed budget contains $200 billion for infrastructure, and approval of that later this year would be a decent down payment. Additionally, Congress will likely soon pass an emergency bill of about $15 billion to help local communities rebuild in the wake of various natural disasters that have hit many states. Much of those funds will be directed to projects that would be considered infrastructure. The demand to find revenue to pay for this plan is less intense since spending offsets are typically not required for rebuilding from natural disasters.
While the immigration drama on the southwest border isn't likely to prompt Congress to pass a comprehensive immigration reform bill, it is encouraging some lawmakers to pass a more narrow bill focusing on changes to US asylum laws. Most migrants making the long journey to the southwest border are seeking asylum, and the system of processing and finalizing those requests is simply not adequate to handle the ongoing deluge of asylum seekers. Senators Lindsey Graham (R-SC) and Ron Johnson (R-WI) will introduce a bill as early as next week to reform parts of the asylum process. It will only advance in a meaningful way if it is bipartisan. Senate Democrats haven't prioritized making changes to the asylum process, and we are doubtful that a critical mass of them will embrace this effort. Nevertheless, with the problems at the border likely to continue to intensify, the Senate will be under significant pressure to act on this bill.