Washington Weekly: US-China Talks

The Senate confirmed several Trump administration nominees and approved House-passed resolutions to repeal Biden administration energy rules. The House passed a bill to codify the Gulf of America and a bill to prohibit the Department of Homeland Security from providing funds to American universities with ties to China.

The Senate will continue to vote on Trump administration nominees and resolutions repealing Biden administration energy standards. The House will vote on a number of law enforcement related bills for “Police Week” (see below).

Reciprocal Deal.

With all of the sound and fury of trade negotiations, there was some tangible progress this week with the announcement of the broad strokes of a trade deal with the UK. The UK is committing to increase market access for various US exports and buy more US aircraft and other products. The US will still impose a 10% tariff on most UK goods, though tariffs would go to 0% for steel and the UK would be able to export 100,000 cars (around the level it exported in 2024) to the US at a 10% tariff (instead of the more generally applicable 25%). The two sides will continue to negotiate a final deal. The devil is often in the details, particularly regarding the tricky issue of non-tariff barriers. With two months left in the 90-day pause on reciprocal tariffs, other initial agreements could be announced in that span. Actual trade deals likely will need to extend beyond the 90 day pause. Depending on their scope, trade agreements also may need Congressional approval. The US has had significant discussions with India, South Korea and Israel, among others. We have talked about how tariffs serve different purposes for President Trump (basis for negotiation, source of fiscal revenue and spur for domestic investment) – this week, Trump the dealmaker was on display.

US-China Talks.

The US continues to be locked in a trade war with China. Both sides would like to find a pathway to de-escalation but have different ideas on what that looks like. This dynamic will be on full display with the US and China having high-level discussions this weekend in Switzerland. The US delegation will be led by Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer. President Trump has indicated that he is open to having tariffs go down, but the rub is that China wants a more dramatic reduction in current tariff levels than where the Trump administration is currently willing to go. It’s not clear China will agree to a reduction of tariffs if tariff levels are still high enough that they block most trade. Whether or not the meetings bring down tariff levels, there is hope that they will help bring the temperature down in US-China relations and lay the groundwork for future discussions between the two sides that could culminate in an eventual summit between President Trump and President Xi.

One Big Beautiful Bill Update.

House committees were busy working on their pieces of the big reconciliation package. The Ways and Means Committee is focused on the biggest part – renewing the 2017 tax cuts and some new tax benefits touted by President Trump. Other committees generally are tasked with finding spending cuts to offset the cost of these tax cuts. The Energy and Commerce Committee is enmeshed in a politically contentious debate on $880 billion cuts to Medicaid. The House Agriculture Committee is looking to make $230 billion in spending cuts to programs like the Supplemental Nutrition Assistance Program, which provides food benefits to low-income families. These three committees have the hardest and most politically sensitive issues to tackle. They will need to find a path forward next week to meet Speaker Mike Johnson’s (R-LA) goal of passing the reconciliation package out of the House by Memorial Day.

Stablecoin Setback.

Congress came into this year with a lot of pent-up interest in advancing crypto legislation into law. Both Senate and House committees moved quickly in passing bipartisan bills to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). While the House is interested in combining its stablecoin bill with a broader market structure bill that would delineate between digital assets that are securities and commodities, the Senate would like to fast-track the stablecoin bill on a standalone basis. This week, the Senate tried to move forward with a stablecoin bill, but a procedural vote failed when Senate Democrats (and a couple of Republicans) objected. A group of Senate Democrats who are potential supporters of the bill had voiced concerns about the current version, indicating that they wanted more consumer protections, stronger anti-money laundering guardrails and a ban on foreign issuers. The current situation is a speedbump for stablecoin legislation, as there will continue to be bipartisan discussions to get the bill back on track.

Fentanyl.

Early in his administration, President Trump placed a total of 20% tariffs (10% in February and 10% in March) on China for having high amounts of trafficking in the chemical ingredients used to make fentanyl. In recent weeks, officials from China reached out to the Trump administration to clarify on how to address the fentanyl problem. This helped open the door for both countries to agree to meet in person this weekend on trade and other issues. This is not the first time the US and China have used addressing fentanyl as a means of de-escalation. In 2019, the Trump administration criticized China for the influx of fentanyl entering the US. China in turn banned the production of fentanyl in 2019 (the chemicals to make fentanyl are what is being trafficked out of China now). While the ice may be thawing on the gridlock between the two countries, the meetings this weekend mark a first step in a long and challenging road ahead.

State and Local Tax Deduction.

One of the biggest outstanding issues with the aforementioned reconciliation package is the future of the $10,000 cap on the state and local tax (SALT) deduction. House Republicans will soon release their first draft of the tax parts of the package. There is a lot interest in how SALT will be addressed in that draft by a committed group of House Republicans who want to increase the cap. There is less interest among Republicans in the Senate, though there is broad recognition that the cap will need to increase in order to get a bill to the president’s desk. We expect the SALT cap to increase, but where it lands is fluid.

ESG's Continued Hotseat.

A big focus of President Trump’s executive actions has been boosting energy production and attacking environmental, social and governance (ESG) policies. Last month, President Trump issued an executive order targeting state climate laws. The order directs the Justice Department to challenge state-level emissions and fossil fuel regulations that the administration claims undermine national energy policy and economic competitiveness. It’s a pointed strike at Democratic-led states like California and New York. Governors in those states counter that their efforts are essential for long-term sustainability, but the federal offensive highlights just how central the fight against ESG priorities has become for Trump’s second-term agenda.

Police Week.

Congress often looks to take up legislation in accordance with nationally recognized dates to honor certain professions or people. Next week is “National Police Week,” a national recognition since 1962 to honor law enforcement officers who lost their lives in the line of duty. In 2024, 147 police officers died in the line of duty, a 25% increase from the previous year. In recognition of Police Week, the House will consider various law enforcement bills. One would require the attorney general to collect and make public data about attacks on police officers. Others would allow law enforcement officers to extend their concealed carry license if they continue to serve their communities and would allow federal law enforcement officers to purchase their service weapon at market value. The Senate will pass resolutions recognizing honorable and fallen law enforcement officers. While there will be some bipartisanship on many of these measures, House Republicans also hope their bills will help them demonstrate their toughness on crime vis-à-vis Democrats. This was a big theme in the last election and will be once again.

Democrats’ Generational Change.

Perhaps the biggest outstanding question for Democrats is who will be the face of the party going forward. While there's no consensus as of yet, there is a feeling that Democrats need generational change and fresh faces. This process began in Congress when former Speaker Pelosi and her leadership team stepped back two years ago. At the end of last year, the top Democrats on three key committees were challenged by younger, more junior Democrats, an unprecedented move in a caucus that has traditionally placed a high value on seniority. All three challengers ended up winning their committee leadership positions. The changing of the guard has continued this year in the Senate where four Senators, including the number two Democrat Senate Minority Whip Durbin (D-IL), have announced they will not seek re-election. During their announcements, all of the outgoing senators alluded to the fact that they believed it was time for new faces and new ideas in the Senate. Democrats are still working to figure out what went wrong last November, but it's clear that one of their takeaways is the need for new leaders within the party.