Economy

Republicans are juggling complex political and tactical questions as they plan their congressional agenda next year.Republicans are starting to sketch out how to translate President-elect Donald J. Trump’s economic agenda into law, putting plans in place to bypass Democrats and approve multiple bills reshaping the nation’s tax and spending policies along party lines.With total control of Washington, Republicans have the rare — and often fleeting — opportunity to leave a lasting mark on federal policy. Some in the party are hoping to tee up big legislation for early next year and capitalize on Mr. Trump’s first 100 days.Much of the early planning revolves around the sweeping tax cuts the party passed and Mr. Trump signed into law in 2017, many of which will expire at the end of next year. Key Republicans are holding meetings about how to maneuver a bill extending the tax cuts through the Senate, while others are consulting economists for ideas to offset their roughly $4 trillion cost.Several questions loom over the Republican effort. They range from how fast the party should move next year to deeper political disagreements over which tax and spending policies to change. The overall cost of the legislation is a central preoccupation at a time of rising deficits. And whatever Republicans put together will most likely become a magnet for other issues the party has prioritized, including immigration.Here’s what to expect.A Difficult ProcessMost legislation needs a supermajority of 60 votes to pass the Senate. But for bills focused on taxes and spending, lawmakers can turn to a process called budget reconciliation that requires only a regular majority of 51 votes in the Senate.Reconciliation is a powerful but cumbersome tool. Its rules prevent lawmakers from passing policy changes unrelated to the budget, and lawmakers are only allowed to use reconciliation a limited number of times per year. Republicans could also raise the debt limit through the process.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldIs Donald Trump to be taken literally or seriously? Salena Zito offered these alternatives in a column in The Atlantic published in September 2016. Today, before he obtains power for a second time, Trump must be taken more seriously and more literally than last time. The evidence comes from his nominations, notably Robert F Kennedy Jr at health, Pete Hegseth at defence, Tulsi Gabbard at national intelligence and Matt Gaetz at justice. These people show that Trump will be far more radical. Moreover, trade policy has long been the area where he is to be taken both seriously and literally; protectionism is not just a long-standing personal belief, but one that he was already dedicated to last time.Unfortunately, the fact that Trump needs to be taken literally and seriously does not mean that he (or those around him) understand the economics of trade. If he is prepared to buy into Kennedy’s “anti-vaxxer” nonsense, why should he care about what economists think about that? He makes two big mistakes: first, he has no inkling of comparative advantage; second and worse, he does not understand that the trade balance is determined by aggregate supply and demand, not by the sum of bilateral balances. That is why his tariff war will not reduce US trade deficits. On the contrary, especially in the current context, it is more likely to lead to inflation, conflict with the Federal Reserve and a loss of trust in the dollar.Some content could not load. Check your internet connection or browser settings.If one wants to produce more of something — import substitutes, for example, as Trump desires — resources must come from somewhere. The questions are “from where?” and “how?”. The answer may be “from exports, via a stronger dollar”, as tariffs lower the demand for foreign currency, with which to buy imports. In this way, a tax on imports ends up as a tax on exports. The trade balance will not improve.Some content could not load. Check your internet connection or browser settings.Fundamentally, macroeconomics always wins, as Richard Baldwin of the IMD in Lausanne reminds us in a note for the Peterson Institute for International Economics. The balance of trade is the difference between aggregate incomes and spending (or savings and investment). So long as this is unchanged, the trade balance will be unchanged, too. The US has spent appreciably more than its income for a long time. This is shown in the consistent net supply of foreign savings, which averaged 3.9 per cent of GDP, between the second quarter of 2021 and 2024. So domestic sectors must in aggregate have been running counterpart deficits. In fact, the surplus of savings over investment in the household sector averaged 2.3 per cent of GDP and that of the corporate sector 0.5 per cent. In sum, only the government ran a deficit, which averaged an enormous 6.7 per cent of GDP. If one wants to eliminate the external deficits, domestic sectors must adjust in the opposite direction, towards higher surpluses of savings, with the biggest adjustment surely coming from these huge fiscal deficits.Some content could not load. Check your internet connection or browser settings.Yet, as Olivier Blanchard notes in another paper for the Peterson Institute, Trump has promised to extend the tax cuts enacted in 2017. In addition, he has suggested that Social Security benefits and tips become fully non-taxable, that the state and local tax deductions be increased, and that the corporate tax rate, which was reduced from 35 to 21 per cent in 2017, be further decreased to 15 per cent for manufacturing firms. He has also suggested mass deportation of some 11mn undocumented immigrants.In brief, he plans to shrink supply and stimulate demand. This will worsen the trade balance, not improve it. Moreover, it will also create inflationary pressure, which the Fed will have to repress. Meanwhile, federal debt will continue on its explosive path, maybe threatening confidence in the dollar itself.Some content could not load. Check your internet connection or browser settings.In sum, there is no possibility of reducing the overall trade deficit with the policies Trump proposes. Reducing the bilateral deficit with China would merely increase deficits with others. That is inevitable, given the persistent macroeconomic pressures. Moreover, his discriminatory trade policies, with 60 per cent tariffs on China and 10-20 per cent on others, are bound to spread. Trump and his henchmen will see that exports from other countries are replacing those from China via trans-shipment, assembly in other countries, or straightforward competition. The answers will either be imposition of “rules of origin”, with all the bureaucracy that requires, or a rise in tariffs towards 60 per cent on all imports of manufactures. Meanwhile, no doubt, there will also be retaliation.Such a spread of high tariffs in the US and across the world is likely to lead to a rapid decline in world trade and output. The UK’s National Institute of Economic and Social Research forecasts: “Cumulatively, US real GDP could be up to 4 per cent lower than it would have been without the imposition of tariffs.” My guess is that this is too optimistic, given the uncertainty that would also be unleashed. Yet even then US external deficits might not shrink. That would depend on whether spending fell even more than output. If it did, the trade balance would improve. But this would also mean a deep recession.Some content could not load. Check your internet connection or browser settings.Last week, I pointed out that trade policy is most unlikely to reverse the long-term decline in the share of jobs in US manufacturing. This week, I add that tariffs unsupported by a reduction in aggregate spending relative to output will not eliminate external deficits. Tariffs alone, especially discriminatory tariffs on one country, will just cause an economic and political mess, as they spread like weeds across the globe.When England’s King Canute supposedly sat before the incoming tide, he did so to prove he could not command the sea. Donald Trump believes he can. He will be disappointed. So, alas, will [email protected] Martin Wolf with myFT and on X More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England must approach interest rate cuts carefully as it assesses the impact of the rise in employer national insurance contributions, Andrew Bailey has said. There are “different ways” in which UK chancellor Rachel Reeves’ decision to increase employer national insurance payments, announced last month in the Budget, may play out, the BoE governor said on Tuesday.“A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook,” Bailey said in a report to the House of Commons Treasury select committee, arguing that it would take time to assess the ramifications. Forecasts from the BoE released this month show it expects the Budget to bring higher growth and inflation in the short term, damping hopes for rapid rate cuts. Consumer price inflation will be running at 2.7 per cent in the final quarter of 2025 — well above its previous forecast of 2.2 per cent, the BoE said. It will fall below the 2 per cent target only in mid-2027, a full year later than the BoE’s Monetary Policy Committee expected in August.Bailey on Tuesday said he saw risks in both directions with regards to inflation, even as he reiterated that progress on reducing inflation had been faster than the BoE had expected.His testimony did nothing to suggest the governor views a further quarter-point reduction as being likely as soon as next month’s meeting. Part of the uncertainty clouding the outlook is over the impact of the £26bn increase in national insurance contributions. The extra costs could be passed on through higher consumer prices, or companies could absorb them through lower margins, by boosting productivity, or by offering smaller pay rises or shedding workers. Recent data has also given Bailey “cause to reflect”, the governor said. Year-ahead expectations for companies’ wage growth in the bank’s decision maker panel survey had stabilised at a higher level of 4 per cent in recent months, for example.Other data also pointed to a relatively tight labour market, indicating “lingering persistence in wage pressures beyond what we are assuming in our projection”.Speaking at the same hearing, Alan Taylor, the newest member of the MPC, struck a more dovish note about the policy outlook. He said market pricing pointed to about four quarter-point rate cuts in the next year, and that this pace chimed with the notion of gradualism. “If conditions are weaker, and my own view is skewed to the downside risks now versus the upside risks of about a year ago, we could go faster,” he said. Clare Lombardelli, BoE deputy governor for monetary policy, said there had been a fall in services inflation as well as wages, and on top of what has happened to goods prices this suggests the drivers of inflation are “less strong than they have been in the past”. But she stressed that she still sees “risks on both sides”, emphasising she would be looking “very carefully” at incoming data, including a pay survey by the BoE’s network of regional agents. Asked about risks of fragmentation in the global trading system, Bailey urged the UK to engage in “active dialogue” about trade with both US president-elect Donald Trump’s administration and Brussels, adding that it must not feel compelled to choose between them.Bailey said it was too soon to tell how the next US administration’s policies would affect the UK, given that “we literally do not know what their intentions are”.But Bailey told the committee: “Free trade is not about choosing one area over another . . . We should approach all areas of the world as places we trade with.”He indicated this meant implementing the post-Brexit settlement with the EU in the best way possible. “I find it hard to understand people who seem to say we should implement Brexit in the most hostile fashion possible.” More

With French public finances increasingly out of control, the 2025 budget bill seeks to squeeze 60 billion euros in savings via tax hikes and spending cuts. The aim is to cut the deficit to 5% of economic output next year from over 6% this year. Lacking a majority in the deeply divided parliament, Prime Minister Michel Barnier told L’Ouest France newspaper last week that he did not see how the budget could be passed without invoking article 49.3 of the constitution.The 49.3, famously used by the previous government to push through President Emmanuel Macron’s pension reform against a backdrop of street protests, allows the text to be adopted without a vote – but usually also triggers a no-confidence motion against the government.Barnier’s weak coalition is propped up by the far-right National Rally (RN), which could join forces with the left to topple his government, making the 49.3 a risky option for him.So far, Barnier has decided to let parliament go through the movements of reviewing and debating the budget before he calls time in order to give lawmakers the impression he is not riding roughshod over their role as legislators.But with a vote on the overall budget scheduled for Dec. 12, Barnier’s patience may be wearing thin. Below is a run-down on the state of France’s budget negotiations.WHERE DOES THE BUDGET LEGISLATION STAND?In an unprecedented move for modern France, a majority of lawmakers in the lower house of parliament rejected the government’s 2025 budget bill last week after leftist lawmakers heavily revised the legislation.A left-wing alliance, which has the single biggest block of seats but falls far short of a lower house majority, had added 75 billion euros ($79 billion) in new tax hikes to the bill.Budget Minister Laurent Saint Martin described the additional tax burden as unacceptable “Frankenstein” legislation that would violate the constitution and EU fiscal rules alike.The rejection means the Senate will begin its review of the government’s original, unamended bill on Monday Nov. 25. ahead of the final vote on Dec. 12.WHAT WILL HAPPEN NOW?Senate finance committee chair Claude Raynal has said the upper house, where Barnier’s conservatives have the most seats but fall short of a majority, would likely make fewer changes to the bill than the lower house.After the senate vote, a panel of lawmakers from both houses will then have to try to agree on a new version of the bill, but with little time for sweeping revisions.As that version would likely be rejected again in the full lower house, the government will then have little choice but to invoke article 49.3 of the constitution to ram the budget through without a vote.WHAT ARE THE CONSEQUENCES OF BYPASSING PARLIAMENT?Left-wing lawmakers in the lower house have said they would then trigger a vote of no-confidence against the government, which could potentially bring it down if it passes.To survive, Barnier needs the far-right RN to abstain from the vote. While some RN lawmakers have brandished the threat of not cooperating, its head Jordan Bardella has said the decision will depend on whether the final cut of the budget reflects their demands.The RN will also have to make a political calculation about whether it gains anything from triggering a political crisis as new legislative elections cannot be held before next summer.Still, a recent request by prosecutors for RN leader Marine Le Pen to face an obligatory five-year ban from politics for her alleged role in embezzlement of EU funds may cause the RN to reassess its loyalty to propping up Barnier’s administration, some analysts have suggested. Le Pen denies the allegations.($1 = 0.9489 euros) More

BOGOTA (Reuters) -Colombia will need a budget adjustment of 56 trillion pesos ($12.7 billion) to comply with its fiscal rule this year, an independent committee of experts said on Tuesday.The Andean country may also require a budget adjustment of 39 trillion pesos ($8.8 billion) in 2025, a report from the Autonomous Fiscal Rule Committee (CARF) said.Colombia’s government has already made cuts to its 2024 budget amid fiscal difficulties, and has been weighing further measures, including a possible 33 trillion peso trim.The finance ministry in June announced a cut worth 20 trillion pesos due to lower than expected income.The CARF already warned in July that Colombia could need additional adjustments to comply with the fiscal rule in 2024 and 2025 due to possible risks to tax collection goals, despite previous government announcements.The fiscal rule was created in 2011 to impose policy constraints meant to block deterioration of public finances. To comply with the rule in 2024, the government would have to keep debt at 55.3% of GDP, rising to 56.4% of GDP in 2025. More

Ukraine plans to spend 2.22 trillion hryvnias ($53.7 billion), or about 26% of its gross domestic product, on defence and security next year, officials said. More

If approved, the agreement would bring the total amount disbursed to Ukraine under the program to $9.8 billion, the IMF statement said, adding that the board was expected to review the deal in coming weeks. “The outlook remains exceptionally uncertain and Russia’s war in Ukraine continues to take a heavy toll on Ukraine’s people, economy, and infrastructure,” the funds’ staff wrote, adding that despite those challenges the program “remains on track.” “The economy has continued to show resilience despite the devastating challenges arising from Russia’s war in Ukraine, which has now lasted 1,000 days,” it added. “However, risks remain exceptionally high given uncertainty on the intensity and duration of the war, including from the continued attacks on energy infrastructure.”IMF staff, which met with Ukrainian officials Nov. 11-18, said the country’s real GDP growth was expected to be 4% this year but slow to 2.5%-3.5% in 2025 amid energy infrastructure damage and labor shortages.Inflation in Ukraine also reached 9.7% year-over-year in October over rising food and labor costs “but inflation expectations remain well anchored,” IMF staff concluded. More

SATARA, India (Reuters) – Indian Prime Minister Narendra Modi has taken several pro-farmer but inflation-stoking measures in recent months, such as easing curbs on rice and onion exports, but that may not prove enough for him to sway an election on Wednesday in a key state. Maharashtra, which includes the city of Mumbai, is a major grower of sugarcane, soybean, cotton and onions, but opinion polls – which have a patchy record in India – suggest Modi’s alliance may struggle to retain the local legislature as farmers say they have yet to benefit from the recent measures.An opinion poll by Lok Poll, covering more than 86,000 people in Maharashtra, showed last week that a coalition of opposition parties including Congress could wrest back the state with up to 162 of the 288 seats. It said low prices for crops such as soybean and cotton were a factor.Other surveys have also said the BJP alliance could lose. Votes will be counted on Nov. 23.Modi’s Bharatiya Janata Party (BJP) lost its parliamentary majority in national elections held between April and June partly due to farmers’ anger with the export curbs, which they felt prioritised Indian consumers above growers by keeping domestic prices low.In that national election, opposition parties won two thirds of the parliamentary seats in Maharashtra.”We faced a setback during the parliamentary elections because of the restrictions on onion exports,” senior BJP leader and Maharashtra deputy chief minister, Devendra Fadnavis, told an election rally on Sunday.”We have now lifted those curbs and Prime Minister Narendra Modi’s government will not impose export bans abruptly.”India has removed export restrictions on rice and onions, and raised the tariffs on imported edible oil in a bid to help local growers of mustard and soybean get better prices at home.TOO LATEBut farmers say the steps have come too late, as they had already harvested and sold their produce like onions to traders, who are now benefiting from a surge in domestic prices.Retail inflation soared to its highest level in 14 months in October, partly due to high prices of edible oils, onions and tomatoes.”When we were selling onions in March and April, the government didn’t allow exports,” said farmer Mahesh Gore in Maharashtra’s Nashik district.”We were forced to sell onions at 10 rupees per kg. If they had allowed exports then, we could have got double the price. Now prices are at 50 rupees, but only traders are benefiting.”In recent years, India restricted onion exports whenever wholesale prices rose above 20 rupees.Other farmers say they are not getting a good price for crops like soybeans because of a global glut now.Mahesh Khade said he was barely getting 3,900 rupees per 100 kg now for soybeans compared with 4,600 rupees a decade ago. Prices of diesel, fertilisers, and other inputs have more than doubled in the same period.”They have ignored farmers’ interests,” Khade said, adding he would switch sides now and vote for the opposition.The BJP did not respond to requests for comment.($1 = 84.38 rupees) More