Economy

“Markets avoided what would’ve been a worst-case scenario for risk assets on Donald Trump’s inauguration. The President indeed held back from enacting a national economic emergency and countrywide tariffs on China and the rest of the world,” ING said in a recent report.Trump’s restraint in the early days of his presidency has opened up room for negotiations and avoided an immediate escalation of friction with China, ING added.The bank highlighted several areas where cooperation between the U.S. and China could be possible, including addressing the fentanyl crisis and resolving the TikTok issue. On fentanyl, ING said this “is an area where there should be room for cooperation,” noting that chemical exports to Mexico and Canada accounted for just $2.8 billion in 2024, or less than 0.1% of China’s total exports.The ongoing TikTok saga, meanwhile, could set the tone for U.S.-China ties, with the 75-day moratorium on TikTok’s ban setting up early April as a “potentially important time window to watch if negotiations do not proceed smoothly.”ING cautioned, however, that while China appears ready to ramp up imports and open up market access, the path to avoid a more destructive trade war remains narrow.”While China clearly would prefer to avoid trade conflicts, especially given recent economic sentiment, this decreased reliance on the US market and US suppliers does open up the possibility for more aggressive retaliation (such as export controls or more targeted tariffs on large US multinationals) from China if it is pushed into a corner,” ING added. More

WASHINGTON (Reuters) – Republicans who control the U.S. House of Representatives are trying to overcome internal differences on how to pay for President Donald Trump’s sweeping tax cuts, with hardline conservatives determined to reduce an annual federal deficit approaching $2 trillion.With a narrow 218-215 House majority, they need near-total unity as they prepare to vote within weeks on a fiscal 2025 budget resolution that will be a critical step toward passing Trump’s sprawling agenda of tax cuts, border and immigration reform, energy deregulation and increased military spending.Ahead of a three-day policy retreat that kicks off in Miami on Monday, some worried openly that House Speaker Mike Johnson’s leadership team might balk at the spending cuts needed to offset the cost of Trump’s $6 trillion tax-cut agenda while also addressing the nation’s more than $36 trillion in debt.Republicans have vowed to extend Trump’s tax cuts from the 2017 Tax Cuts and Jobs Act, or TCJA, which are set to expire at the end of this year. The nonpartisan Committee for a Responsible Federal Budget estimates that doing so would cost more than $4 trillion over ten years, while Trump campaign pledges to eliminate taxes on tips, overtime and Social Security benefits could cost another $1.8 trillion.Failure to reach agreement could trip up Republican lawmakers’ plan to pass Trump’s agenda by the end of May, using a maneuver to bypass Senate Democrats that will require almost all of the fractious majority to agree.”Most of us support the TCJA. I don’t think that’s the issue. We all want to support what President Trump is doing. But we also recognize the need to get our fiscal house in order,” said Representative Michael Cloud, a member of the hardline House Freedom Caucus.”We’ve got to have a course correction, and it’s got to be dramatic,” he told Reuters.Johnson said he hopes to finalize components of a single sprawling legislative package to fund Trump priorities. Republicans must also decide whether to include an increase in the federal government’s debt ceiling — which Congress must do later this year to avoid a devastating default — and disaster relief for Los Angeles communities devastated by wildfires.     “There are a number of ideas on the table,” Johnson told reporters before lawmakers left Washington last week, saying his caucus aimed to reach agreement in Miami.House Democratic leader Hakeem Jeffries blasted Republican plans as “a contract against America.” He warned: “It will hurt working families, hurt the middle class, hurt our children, hurt our seniors and hurt our veterans.” Jeffries also said the Republican agenda would undermine the Medicaid healthcare program for the poor, as well as government-subsidized healthcare for uninsured workers under the Affordable Care Act.COST OF TRUMP AGENDARepublicans say they face a major challenge finding enough spending cuts to cover the cost of the Trump agenda and worry privately that hardliners’ insistence on significant deficit reduction could harm their constituents by reducing Medicaid funding for hospitals and outlays for other community services.”This thing cannot be deficit neutral,” said Republican Representative Ralph Norman, adding that the package would need to reduce the deficit “to the tune of a big number.”Another potential roadblock: The rising U.S. deficit is weighing on the bond market, pushing the nation’s borrowing costs higher. A significant deepening of the deficit could add to those worries.’THIS IS AN EQUAL BODY’The debate will test which is more powerful — Trump’s demands or hardliners’ will to hold to a traditional Republican goal of cutting the deficit.”The president said very clearly what he wants. Now the question is, what do we want? This is an equal body … We’re supposed to have different opinions. If we don’t, we’re in trouble, because we’re no longer a constitutional republic, said Representative Richard McCormick (NYSE:MKC).The House Budget Committee has circulated a 50-page menu of proposals that includes trillions of dollars ranging from ideas widely supported in the party, such as repealing green energy tax credits, to the controversial, including the federal home mortgage interest deduction.A proposal to raise $1.9 trillion from a 10% tariff on imported goods, which Trump has proposed, also faces opposition from House and Senate conservatives. “I’m not in favor of raising taxes. Tariffs are simply a tax,” said Republican Senator Rand Paul, a leading fiscal hawk.Even as Republicans try to edge toward agreement, Representative Tim Burchett said he worries that up to $200 billion in proposed additional funding for the Pentagon could absorb savings that he would rather use to address the deficit. But he stopped short of saying that such an outcome would lead him to oppose the package.   “If I see us trending in the right direction, that might be enough,” Burchett said. “But again, we’re lying to ourselves, and we’re lying to the public. We go home and say, we’re going to do these things. And then we come up here and wink and nod and sell the people down the river. And we go home and get reelected. It’s a crazy system.” More

What followed was a boom in economic growth, a surge in inflation, and a jump in interest rates — all against an environment of renewed violence in several regions around the world and the emergence of artificial intelligence.This has all translated into 563 rate hikes, $7 trillion in quantitative tightening, a cumulative $11 trillion US deficit, $36 trillion in national debt, and $1.2 trillion in annual US interest payments over the opening half of the decade, analysts at Bank of America flagged in a note to clients.However, they argued that perhaps the biggest change for asset prices has come from an inflection in bond yields, which move inversely to prices. An uptick in benchmark 10-year US Treasury yields to their long-term average after a pandemic-era drop “has led to frequent booms and busts in asset prices, with the former more concentrated than the latter”, the analysts said.”Ultimately, macro has dominated over the past five years,” they said.But, as the back-half of the 2020s dawns, an “era of micro” may be about to begin, the analysts predicted.”We think micro themes will dominate macro in the coming 5 years: tech transforming our economy against a backdrop of populism, AI resource bottlenecks, generational shifts in power and wealth, and a return of government fiscal discipline,” they wrote.In particular, the change to a focus on micro trends will be driven by accelerating technological disruption fueled by the widespread adoption of AI in both businesses and societies, they said.Productivity growth will have to increase in turn in order to justify soaring tech sector equity valuations and prices, while AI itself will require “more of everything — from resources to infrastructure”, the analysts argued.”These huge funding requirements could not come at a less opportune time: record government debt and populist policies will prioritize breaking the inflation cycle in the US and reviving stagnant growth at the heart of Europe,” they wrote, adding that they foresee “backlashes” to the disruptive force of AI over the rest of the decade.Generation Z, also known as “Zoomers”, will subsequently “have a major say in the government response and the extent to which AI disrupts our societies and the labour market, as well as how government debt is managed,” they said. More

LAS VEGAS (Reuters) -President Donald Trump capped a frenzied first week back in office with a stop in Las Vegas on Saturday to talk about cutting taxes on tips, a 2024 campaign promise he made in the gambling and hospitality hub.Trump took the stage before cheering supporters at the Circa Resort and Casino (EPA:CASP) in front of a large banner reading “No Tax on Tips” and said economic confidence was soaring in the United States.”America’s decline is over,” he said at the start of his remarks, echoing themes from his inauguration remarks earlier in the week.Since taking office on Monday, the new Republican president reversed a myriad of policies put in place by Democratic predecessor Joe Biden and moved to fulfill his vow of remaking and shrinking the federal bureaucracy.In visits on Friday to disaster areas in North Carolina and California, Trump pledged federal aid to help those states recover from hurricane and wildfires after floating an idea to shutter the Federal Emergency Management Agency.In Las Vegas, Trump doubled down on a less controversial proposal: his pledge to end taxation of income from tips, a proposal he first made in June as he courted service workers in the presidential swing state of Nevada. The tip-heavy hospitality industry comprises more than a fifth of all jobs in the state. “Your tips will be 100 percent yours,” Trump said, joking that he would go after the same workers for not reporting their tipped income over the last 10 years.Trump said that a “young beautiful waitress” had given him the idea for the policy proposal and joked that that was the extent of his research on the issue.His Democratic opponent in 2024, former Vice President Kamala Harris, also pledged to do away with taxes on tips, following in Trump’s footsteps. Her campaign said the proposal would require legislation by Congress. Trump won the state.Michael McDonald, Nevada Republican Party chairman, said the idea is attractive to people in the state who are facing high prices for essential goods like food and gas.”He cares about the no tax on tips, no tax on Social Security. That was something that we brought to the community, and everybody loved it because we’re all hurting,” McDonald told local television after welcoming Trump on Friday night.The proposals Trump made on the campaign trail – from extending his 2017 tax cuts to abolishing tax on tips, overtime and Social Security benefits – could add $7.5 trillion to the nation’s debt over the next decade, according to the nonpartisan Committee for a Responsible Federal Budget.Trump is pushing a plan to explicitly use revenue from higher tariffs on imported goods to help pay for extending trillions of dollars in tax cuts, an unprecedented shift likely to face opposition from Republican budget hawks concerned about the reliability and durability of tariff revenue.Days before he returned to office, some of his Republican allies in Congress warned that Trump’s aggressive tax-cut agenda could fall victim to signs of worry in the bond market.At a closed-door meeting on Capitol Hill, Republicans in the House of Representatives aired concerns that the estimated $4 trillion cost over the next 10 years of extending the 2017 Trump tax cuts could undermine the U.S. government’s ability to service its $36 trillion in debt, which is growing at a pace of $2 trillion a year. More

“We believe the new Treasury Secretary, Scott Bessent, plans to pursue a policy mix – which we call Bessenomics – that boosts economic growth and stabilizes the public debt-to-GDP ratio,” BCA Research said in a special report that sought to explore potential policies that Bessent may opt to implement.The policy mix, dubbed ‘Bessenomics,’ is expected to be built on three key pillars: currency depreciation instead of high import tariffs, fiscal policy calibration, and increased U.S. oil supply to deflate crude prices.Bessent may push for dollar depreciation rather than tariffs to boost U.S. manufacturing competitiveness and create industrial jobs. This approach, according to BCA, could avoid the potential destabilizing effects of tariffs on markets and the economy.Bessent may also strike a deal with the Federal Reserve to reduce interest rates substantially, provided the government and Congress cut fiscal spending. This combination of tighter fiscal and easier monetary policy has historically led to currency weakness.To prevent inflation expectations from rising and bond yields from spiking, Bessent’s strategy, BCA hypothesizes, could include cutting fiscal spending and lowering oil prices. These measures, along with “proper macro communication and our credibility, will be sufficient to bring down bond yields despite dollar weakness,” the report speculates. More

PALO ALTO, California (Reuters) -A joint venture between U.S. electric pickup and SUV maker Rivian (NASDAQ:RIVN) and Volkswagen (ETR:VOWG_p) is in talks with other automakers about supplying their software and electrical architecture, a senior Rivian executive said on Thursday.The German automaker agreed in November to invest $5.8 billion in the joint venture, which will integrate advanced electrical infrastructure and Rivian’s software technology for both companies’ future electric vehicles.While a joint venture will give Rivian higher volumes to negotiate better supplier deals and reduce costs, seen as critical amid a slowdown in EV demand, Volkswagen and potentially other traditional automakers will get quick and easy access to technology and software they have struggled to build for years.”I’d say that many other OEMs are knocking on our door,” Rivian Chief Software (ETR:SOWGn) Officer Wassym Bensaid said in an interview, referring to Original Equipment Manufacturers, a phrase used to describe vehicle makers.Bensaid, who is also co-CEO of the joint venture, declined to provide names of the interested automakers and details on what stage the talks were at. Rivian’s architecture requires fewer electronic control units and significantly less wiring, reducing vehicle weight and simplifying manufacturing. The technology is core to building cars with software that could be updated over the air like a smartphone – what the industry calls “software-defined vehicles”, an area where established automakers are still running behind.”There is demand,” said Bensaid, adding that the priority until 2027 was to roll out the R2, Rivian’s smaller, less-expensive SUV and to integrate the technology in other Volkswagen brands. “Obviously other OEMs are talking to us and we’re trying to figure out how to support that in the future.””Any other OEM who wants to make a leap from a technology standpoint, the joint venture today becomes one of the key partners with whom they can make that collaboration,” he said. The venture is likely to become the platform of choice in the Western world apart from Tesla (NASDAQ:TSLA), Canaccord Genuity analysts said in a note. The joint venture also helps alleviate “a significant chunk of the capital concern” for Rivian, the analysts said. More

“President Trump did not impose tariffs on day one. Instead, he issued a presidential memorandum entitled ‘America First Trade Policy,'” Barclays said in a note. “Investors should read the memorandum as a blueprint for what to expect next on tariffs.”The memorandum directs certain departments and agencies to review and issue reports by April 1, 2025. These reports, the analysts believe, are likely to serve as the catalysts for new tariff proposals or adjustments to current tariffs. In further support of the Apr. 1 as key date to watch, the analysts believe the timeline also provides ample time for the Senate to confirm key positions, including Howard Lutnick as Commerce Secretary and Jamieson Greer as US Trade Representative. These two roles need to be filled before the Trump administration begins to alter tariff policy, the analysts added.Following the reports due on Apr. 1, changes to tariff policy could be announced, likely taking effect 30-to 60-days later, Barclays said.  The presidential memo suggests that various tariffs could be on the table including a universal tariff and tariffs targeting China, Mexico, and Canada.Trump has, however, already threatened to impose 25% tariffs on Mexico and Canada starting Feb 1, and up to 100% tariffs on China over TikTok, but Barclays believes the timeline proposed in the memorandum carries more weight rather than these “off-the-cuff remarks.”The memorandum also calls for investigations into the causes of the U.S.’s annual trade deficits in goods and recommendations for remedies, which could include “a global supplemental tariff or other policies.”This suggests that “countries and sectors most vulnerable to targeted tariffs could be those with the largest trade deficits in goods with the US,” Barclays said. More