Trump Floats a Big Cut to China Tariffs

Happy Friday - and a Happy Mother's Day this weekend to all the moms out there. Here's your fiscal update.

Trump Floats 80% China Tariff, White House Walks It Back

President Donald Trump said Friday he would be fine with a significant drop in the tariff he imposed on China but left it to his Treasury chief to work out the details.

"80% Tariff on China seems right!" Trump said on his social media platform, adding, "Up to Scott B.," an apparent reference to Treasury Secretary Scott Bessent, who plans to meet with Chinese officials in Switzerland this weekend.

An 80% tariff would represent a major drop from the crippling 145% tariff currently imposed on most Chinese goods, though economists say even 80% is high enough to severely hamper trade between the U.S. and China.

Later in the day, Press Secretary Karoline Leavitt soft-pedaled Trump's remark, saying the president just "threw out" the number while making it clear that any reduction in the tariff would require a move from the Chinese.

"The president still remains with his position that he is not going to unilaterally bring down tariffs on China," Leavitt said. "We need to see concessions from them as well."

Speaking to reporters in the Oval Office, Trump said he assumes the tariff rate will be lowered eventually. "You can't get any higher. It's at 145, so we know it's coming down," Trump said. He then said he expects the talks in Switzerland to be "a very friendly meeting," adding that the negotiators "look forward to doing it in an elegant way."

Automakers pan Trump's UK trade deal: Meanwhile, U.S. automakers issued a negative review of the tariff agreement with the U.K. that Trump announced yesterday. In a statement, the American Automotive Policy Council, which represents Ford, General Motors and Chrysler parent Stellantis, criticized Trump for failing to make North America a priority in trade negotiations, since the region operates as an integrated production zone for the U.S. auto industry.

"We are disappointed that the administration prioritized the UK ahead of our North American partners," AAPC said. "Under this deal, it will now be cheaper to import a UK vehicle with very little U.S. content than a USMCA compliant vehicle from Mexico or Canada that is half American parts. This hurts American automakers, suppliers, and auto workers."

Critics also continued to emphasize that the trade framework announced Thursday falls well short of a comprehensive agreement, and in fact creates no enforceable obligations whatsoever. As University of Michigan economist Justin Wolfers noted, the text of the "general terms" for a future "prosperity deal" between the countries includes the sentence: "Both the United States and the United Kingdom recognize that this document does not constitute a legally binding agreement."

List of the Day

"Ikea furniture; Speedo swim goggles and swim caps; Procter & Gamble tissue holders; Samsung printed circuit boards, microwaves and refrigerator parts; Ralph Lauren sweaters, cashmere, and blazers; Dr. Martens Airwair footwear; Samsung microwaves and refrigerator parts; LG washing machines, air conditioners, ranges, refrigerators and dishwashers; Bauer Hockey sporting goods; Lenovo computer parts; auto parts for Valeo North America; and headsets and computer keyboards for Polaris ..."

• The first container ships from China subject to President Trump's punishing 145% tariff are starting to arrive in West Coast ports, and CNBC's Lori Ann LaRocco listed some of the products in the roughly 12,000 shipping containers onboard. The list also includes garden tools and men's work boots for Tractor Supply; lamps and ceiling fans for Home Depot; and refrigerators, deep fryers, bookshelves and sofas for various merchants on Amazon.

A shipping executive told CNBC that importers were still struggling to understand how the tariffs work, and how to react. "This confusion has led them to continually alter and update their scenario planning, freezing any other decisions for the business they would be making," said Brian Bourke, global chief commercial officer at SEKO Logistics. "Many of our clients priced and sold their products or projects prior to the tariff amounts being announced, and with the speed and severity as well as the quantity of new tariff provisions being announced, they are not able to change the pricing on items that have already sold and are arriving in May and June, or beyond."

Bessent Says US Could Hit Debt Limit in August

Treasury Secretary Scott Bessent said Friday that the debt limit may prevent the federal government from meeting all its obligations starting at some point in August.

The current debt limit is $36.1 trillion, which the Treasury bumped up against in January. Officials have deployed extraordinary measures, including the suspension of some regularly scheduled federal pension investments, to maintain cash flow while meeting all fiscal obligations. But those extraordinary measures will eventually reach their limit, creating a deadline for default referred to as the X-date.

In a letter to House Speaker Mike Johnson, Bessent said a review of the April tax receipts indicates that there is a "reasonable probability" that the government's cash reserves and extraordinary measures could be exhausted starting in August, during the congressional summer recess.

"Therefore, I respectfully urge Congress to increase or suspend the debt by mid-July, before its scheduled break," Bessent said.

The Treasury secretary added that history has shown that waiting until the last possible moment to address the debt limit can damage financial markets, the government, private business and taxpayers. Bessent warned that "failure to suspend or increase the debt limit would wreak havoc on our financial system and diminish America's security and global leadership position."

One potential hurdle for raising the debt limit is that Republicans plan to address the issue in their "one big, beautiful bill" that extends the 2017 tax cuts and provides more defense and border funding. That bill is still very much up in the air at the moment, however, raising the odds that Congress may have to scramble to head off the threat of a debt default this summer.

Republicans Struggle to Resolve Differences Over Reconciliation Bill

House Republican leaders had hoped to make significant progress this week resolving lingering internal differences on key elements of their massive budget reconciliation package - plans for trillions of dollars in tax cuts as well as potential cuts to Medicaid and food assistance programs. But many of those intraparty battles remain unresolved, even as Republican leaders hope to have three House committees advance those elements of the plan next week.

"On one end are hard-line conservatives pushing to make the package deficit-neutral, advocating for changes to Medicaid to achieve that goal," The Hill's Mychael Schnell wrote Friday. "On the other end of the party are moderates concerned about changes to social safety net programs, and centrists from New York, New Jersey and California pushing for an increase to the state and local tax deduction cap, an expensive endeavor."

Ruling out some cuts to safety net programs: House Republican leaders this week nixed some cuts they had been considering to generate savings in Medicaid and federal food assistance programs. House Speaker Mike Johnson told reporters that the GOP plan would not cut the percentage of state Medicaid costs that the federal government pays, and House Agriculture Committee Chairman Glenn Thompson told The Washington Post that federal anti-poverty food assistance funding won't be rescinded. The remaining menu of options in unlikely to yield the $880 billion in savings that Republicans are seeking to get from programs overseen by the House Energy and Commerce Committee.

Targeting smaller tax cuts: Republicans set a goal of finding $2 trillion in total spending cuts, but they have struggled to reach that target. That has forced them to scale back the tax cut package they are pursuing because GOP hard-liners have insisted that the size of tax cuts in the Republican plan be directly linked to the level of spending cuts.

House Speaker Mike Johnson reportedly told his conference members Thursday that he is now aiming for $1.5 trillion in spending cuts and a downsized package of $4 trillion in tax cuts, not $4.5 trillion - a shift that means it will be much harder to make the 2017 tax cuts permanent as Trump and other key Republicans want. "Republicans talk a big game ... about reining in reckless spending," House Budget Chair Jodey Arrington told reporters. "You won't get the full permanency in the tax policy on all the provisions if we don't get to the $2 trillion in savings, and that's unfortunate."

**Raising taxes on the rich? **As they seek to dial back the overall cost of their tax cuts, the idea of raising taxes on the rich has surfaced repeatedly, fueled this week by news that President Donald Trump himself is pushing for the creation of a 39.6% tax bracket for individuals earning at least $2.5 million, or couples making $5 million. The current top tax bracket is 37% and applies to income over $626,350 for individuals or $751,600 for married couples filing jointly.

Trump reportedly asked for that tax change in a Wednesday phone call with Johnson. He reportedly also pressed for the elimination of the carried-interest tax break that benefits venture capital and private equity investors. Revenue from those changes would give Republicans more room to extend their 2017 tax cuts and enact Trump's campaign promises to end taxes on tips, Social Security benefits and overtime pay. A new tax rate on top earners would raise a relatively paltry $67.3 billion over a decade, according to an estimate reportedly provided to Bloomberg News by the Tax Foundation.

Mixed messages from the president: Trump continues to publicly deride the idea of a tax hike on the wealthy, warning that it would drive rich people out of the country and cost Republicans politically. He offered a mixed message on Friday morning, when he wrote on social media:

"The problem with even a 'TINY' tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers, is that the Radical Left Democrat Lunatics would go around screaming,'Read my lips,' the fabled Quote by George Bush the Elder that is said to have cost him the Election. NO, Ross Perot cost him the Election! In any event, Republicans should probably not do it, but I'm OK if they do!!!"

That's not exactly a full-throated endorsement of an idea that many Republicans see as antithetical to the core tenets of their party. Dozens of Republican lawmakers - 44 senators and 191 House members - have signed a pledge to oppose all tax increases.

A standoff over SALT: Republicans from blue states have also been negotiating for an increase in the deductibility of state and local taxes, an expensive change opposed by fiscal hawks that complicates the math for the larger package. The so-called SALT cap was set at $10,000 a year by the GOP's 2017 tax law, and four Republican lawmakers from New York on Thursday rejected a proposal to lift that limit to $30,000.

The bottom line: Republicans still have a lot of work to do.

Number of the Day: 44

The New York Times reports that at least 44 of the government contracts canceled by Elon Musk's Department of Government Efficiency have been brought back by federal agencies, eliminating more than $220 million in supposed savings - but 43 of those contracts still appear on the DOGE "Wall of Receipts."

"The result was another in a series of data errors on the website that made the group seem more successful in reducing government costs than it had been," Times reporters David A. Fahrenthold and Jeremy Singer-Vine write, adding, "The White House says that this is a paperwork lag that will be remedied."

Fiscal News Roundup

• Trump Advises Against Tax Hike on Wealthy, Then Says He'd Be 'OK' With It – Politico
• 'Republicans Talk a Big Game': GOP Trims Trump's Sails After Spending Cuts Falter – Politico
• Ahead of Key China Talks, Trump Says 80% Tariff 'Seems Right' – Reuters
• Bessent Says Debt Limit Measures Could Run Out in August – Bloomberg
• Republicans Fear Political Cost of Medicaid Cuts – Washington Post
• Republican Agenda Hits Familiar Obstacle: State and Local Taxes – New York Times
• Even With DOGE Cuts, the U.S. Has Spent $166 Billion More Than Last Year – Washington Post
• Republican Senators Question Trump's Plans to Change FEMA – Roll Call
• US Automakers Rip Trump Trade Deal With UK – The Hill
• Trump's Priority List for Tariff Talks Homes In on Around 20 Economies – Bloomberg
• Vance Says Powell Is a 'Nice Guy' Who Is 'Wrong About Almost Everything' – The Hill
• GOP Eyes Endowment Tax Hike in Escalation of Ivy League Feud – Bloomberg
• Postal Service Facing 'Economic Headwinds,' Reports $3.3B Loss – The Hill
• More Older Americans Not Confident Social Security Will Be There for Them: Survey – The Hill
• Uproar Over Surgeon General Pick Exposes Factions Among RFK Jr. Allies – Washington Post

Views and Analysis

• The Actual Math Behind DOGE's Cuts – Jessica Riedl, The Atlantic
• The Republicans' Budget Makes No Sense – Annie Lowrey, The Atlantic
• The Big Winner of Trump's Much-Hyped Trade Deal Is ... Not the US – Timothy Noah, New Republic
• Americans Are Worried About Affording the Necessities. Not Dolls – Michelle Singletary, Washington Post
• Inside Trump's Negotiating Strategy With China – Phil Mattingly, CNN
• It Took 250 Years to Build What Trump Is Trying to Undo – Zachary Wolf, CNN
• The Biggest Medicaid Cut Left for House Republicans Would Hit Red States Hardest – Sarah Kliff, Margot Sanger-Katz and Alicia Parlapiano, New York Times
• The Incredible Shrinking GOP Tax Cut – Wall Street Journal Editorial Board
• DOGE's Zombie Contracts: They Were Killed but Have Come Back to Life – David A. Fahrenthold and Jeremy Singer-Vine, New York Times
• Things Are About to Get Complicated for the Fed – Bloomberg Editorial Board
• Congress Still in the Dark on Cuts to Department of Veterans Affairs – Jamie Dupree, Atlanta Journal-Constitution
• Ten Questions on House Republicans' Upcoming Tax Bill – Chuck Marr, Samantha Jacoby and Kris Cox, Center on Budget and Policy Priorities
• The US Economy Will Pay the Price for Trump's Attacks on Universities – Simon Nixon, Bloomberg