Trump’s Trade War Is Starting to Drive Inflation

Happy Tuesday! Today is apparently National Give Something Away Day and here at TFT global headquarters we all got some White House Swedish Ivy. It's also National Gummi Worm Day and National Tapioca Pudding Day, so snack away while you get caught up on the latest fiscal developments.

Republicans Agree to Take Global AIDS Program Off the Chopping Block

The White House and Senate Republicans have agreed to take PEPFAR, the global program combatting HIV/AIDS, off the chopping block.

The move comes as Senate Republican leaders maneuvered Tuesday to secure the votes they need to pass a White House package of cuts to foreign aid and public broadcasting.

President Donald Trump's budget office had requested $9.4 billion in rescissions, or cuts to spending previously approved by Congress, including $8.3 billion in foreign aid and $1.1 billion for public broadcasting. The House narrowly passed that package last month, but some Senate Republicans balked at certain cuts, perhaps most notably the funding for PEPFAR, a program started by President George W. Bush.

"I want to strike the rescission of funds for PEPFAR, which has an enormous record of success, having saved some 26 million lives over the course of the program, as well as preventing nearly 8 million infants from receiving AIDS from their infected mothers," Sen. Susan Collins reportedly said. "So I can't imagine why we would want to terminate that program."

Senate Majority Leader John Thune and White House Budget Director Russ Vought told reporters Tuesday afternoon that they had agreed to remove those proposed cuts from the package. Vought said that the remaining cuts would total $9 billion. "There is a substitute amendment that does not include the PEPFAR recission and we're fine with that," Vought said.

Collins, who heads the Senate Appropriations Committee, reportedly still has concerns about the rescissions package and the lack of details about what accounts would be cut, but Thune and Vought reportedly signaled that the remaining cuts were on track to pass. Democrats are set to vote against the plan, but Republicans can pass the recissions on their own with a simple majority vote using a process established by a 1974 budget law. Republicans can afford to lose up to three votes from their party and still pass the bill, which must reach Trump's desk by Friday or the proposed cuts will expire.

Another Republican who had expressed concerns about the bill, Sen. Mike Rounds of South Dakota, said Tuesday that he'll support the package after reaching a deal with the White House budget office to reallocate some Inflation Reduction Act funding to tribal radio stations.

The House will need to vote on the bill again because of the Senate changes.

Democrats railed against the proposed cuts, warning that they will hurt rural communities that rely on public broadcasting for critical alerts and news. Democrats also warned that the partisan rescissions process undercuts any bipartisan budget and appropriations talks.

"How are we supposed to negotiate a bipartisan deal if Republicans will turn around and put it through the shredder in a partisan vote," Sen. Patty Murray, the top Democrat on the Appropriations Committee, asked last week. "To suggest, even for a second, Republicans are doing this to address the debt is laughable. And I encourage the American people to laugh at anyone who pretends as much. Because you could cut the equivalent of this bill every single day, for an entire year, and it still would not match the cost of the billionaire tax cuts Republicans passed last week."

Thune dismissed those Democratic warnings. "The Democrats have suggested that they would shut the government down over us taking up rescissions - that somehow that's going to step on the normal appropriations process," he said at an afternoon news conference, arguing that rescissions are part of that process. "What we're talking about here is one tenth of 1% of all federal spending. ... That's one thousandth of the federal budget that's included in this rescissions package."

Why it matters: The $9 billion in cuts pale in comparison to the roughly $4 trillion in additional debt projected to accrue because of the tax-and-spending megabill Republicans just passed. And the cuts are just a tiny fraction of the trillions in savings that Elon Musk had promised that the Department of Government Efficiency could deliver. Still, rescissions are a key part of the Trump administration's strategy to slash and reshape government spending, and this package is expected to be the first of several still to come. It would reportedly be the first presidential rescissions package to be approved since the Clinton administration.

What's next: The Senate began consideration of the package Tuesday ahead of a marathon series of votes leading up to a final vote on Wednesday.

Number of the Day: 500

"Five months into its unprecedented dismantling of foreign-aid programs, the Trump administration has given the order to incinerate food instead of sending it to people abroad who need it," Hana Kiros of The Atlantic reported late Monday.

The administration will reportedly spend $130,000 to incinerate nearly 500 metric tons of high-energy biscuits - enough emergency food to feed about 1.5 million children for a week, Kiros writes. The biscuits cost the U.S. Agency for International Development about $800,000. Within weeks, Kiros writes, "the food, meant for children in Afghanistan and Pakistan, will be ash." She adds that some aid workers she spoke with said they had never seen the U.S. government give up on food that could have been put to good use.

Trump's Trade War Is Starting to Raise Prices

In a worrying sign that higher tariffs may be starting to ripple through the economy, consumer prices rose at a faster pace in June than a month earlier, the Department of Labor announced Tuesday.

The Consumer Price Index rose 0.3% in June, up from the 0.1% monthly rate recorded in May. Over the last year, the inflation rate rose to 2.7% in June, compared with the 2.4% annual rate recorded in May.

The faster pace was driven by rising prices for clothing, coffee, audio equipment, recreation goods, appliances and household furnishings, as well as a 0.9% increase in the price of energy.

The core CPI rate, which ignores volatile food and fuel prices to provide a stronger sense of the underlying trend, also rose in June, climbing from 0.1% to 0.2% on a monthly basis, and from 2.8% to 2.9% on an annual basis.

Trump sees no problem: President Trump embraced the report, saying the inflation numbers are no cause for concern while once again calling on the Federal Reserve to lower interest rates. "Consumer Prices LOW," he wrote on his social media platform. "Bring down the Fed Rate, NOW!!!" Trump said the Fed should "cut Rates by 3 Points" to reduce the cost of federal debt payments.

White House Press Secretary Karoline Leavitt echoed the president's comments, saying that, contrary to expert opinion, the June inflation numbers demonstrate that tariffs are not a threat. "The data proves that President Trump is stabilizing inflation and the Panicans continue to be wrong about tariffs raising prices," she said, employing a word Trump has used to criticize "weak and stupid people" who are concerned about tariffs and inflation.

What the experts are saying: While economists always caution about drawing firm conclusions from a single data point, some interpreted the June inflation report as a fairly clear signal that tariffs are beginning to affect prices, as widely expected. "Tariff induced inflation can be directly observed by looking at the large price increases in furniture, appliances & apparel," RSM Chief Economist Joseph Brusuelas wrote. "It's exactly where one would expect to observe tariffs on Chinese imports."

In a research note, Brusuelas said the data is consistent with an increase in the overall inflation rate to a range between 3% and 3.5% by the end of 2025. "Inflation has started a slow climb as signs of tariff-induced inflation are now evident within durable and nondurable imports," he wrote.

Former Obama administration economic adviser Jason Furman largely agreed. "Overall as expected but the expectation was more inflation. And I expect even more inflation," Furman wrote on X. "The timing of the tariff impact has been a bit slower than I might have thought but it is clearly coming through, firms burning off pre-tariff inventories, and more tariffs kicking in."

Other analysts were more cautious, saying it's too soon to make a call. "It's really hard to point to this report or any details in the report and say, 'Aha! See what's happened to prices because of tariffs,'" Dan North, senior economist at Allianz Trade North America, told CNBC. "You get these pretty massive tariff increases. It's bound to pass through to the consumers, and I still think it will, but it's not in this report so far."

Fiscal News Roundup

• Republicans Look to Tweak Trump's Request for $9.4 Billion in Spending Cuts – Associated Press
• Global AIDS Funding to Be Pulled From Trump Clawbacks Request – Politico
• Rural America and Kids Will Suffer if PBS Is Defunded, Its Chief Says – Washington Post
• House Hard-Liners Tank Procedural Vote for Crypto, Defense Bills – Politico
• Senate Democrats Want Probe of FEMA Cost-Control Policy After Texas Flood Tragedy – Politico
• Key Senate Republican Thinks Deal in the Offing Over FBI HQ Location Dispute – Politico
• House GOP Wants to Cut EPA by 23 Percent – The Hill
• Inflation Surged in June Amid Tariffs as Trump Declared 'Inflation Is Dead' – ABC News
• Power Prices Are Expected to Soar Under New Tax Cut and Spending Law – NPR
• The Government Wants AI to Fight Wars and Review Your Taxes – Washington Post
• Bessent: 'Formal Process' Underway to Pick Powell Successor – The Hill
• Dimon Defends Fed Independence After Trump Attacks – Wall Street Journal
• Europe Draws Up Retaliatory Tariffs for U.S. Goods in Case No Trade Deal Is Reached – Wall Street Journal
• Top U.S. Cyber Agency Keeps Shrinking Under Trump 2.0 – Axios
• DOGE Sprouts in Red States, as Governors Embrace the Cost-Cutter Brand and Make It Their Own – Associated Press
• Federal Judge Reverses a CFPB Rule to Strip Medical Debt From Credit Reports. Here's What It Means – CBS News

Views and Analysis

• Powell's Caution on Tariff-Driven Inflation Is Right – Jonathan Levin, Bloomberg
• If You Like 35 Percent Inflation, Go Ahead, Fire the Fed Chair – Rebecca Patterson, New York Times
• Trump's Attacks on the Fed Are Worse Than You Think – Washington Post Editorial Board
• Trump May End Up Sorry He Tried to Control the Fed – Gerard Baker, Wall Street Journal
• How the Fed Sets Rates - and Why Powell Can't Do What Trump Wants Alone – Jason Lalljee, Axios
• How President Trump's Tariffs Might Impact Low-Income Households in the U.S. – Sarah McCammon, NPR
• Trump's Dueling Economic Realities Will Inevitably Collide – Ben Berkowitz, Axios
• The IRS Is Building a Vast System to Share Millions of Taxpayers' Data With ICE – William Turton, Christopher Bing and Avi Asher-Schapiro, ProPublica
• GOP Wrecking Ball Slams Through Medical System – Whitney Curry Wimbish, America Prospect
• Is the Dollar's Era of Exorbitant Privilege Ending? – Clive Crook, Bloomberg
• U.S. Aid for Global Health Is Saving Lives – Bill Gates, Wall Street Journal
• Trump Can't Ignore Our Housing Crisis – William A. Galston, Wall Street Journal
• How States Should Spend All That Opioid Settlement Money – Washington Post Editorial Board
• Houston, We Have a Problem: Scrapping the Space Station Harms the US – Mary Guenther, The Hill