Can Trump's Tax Cuts Be Made Permanent? Tariffs, Spending Fights Cloud the Picture

Economic

China–U.S. Trade War

Summary:

Republicans face internal conflict over tax cut permanence and spending cuts. Economic growth projections questioned amid trade war and immigration policies.

Republican hopes of making all of President Donald Trump's 2017 tax cuts permanent are in jeopardy in Congress, as lawmakers struggle to agree on how to pay for them and Trump's trade war and immigration crackdown dim the prospect of economic growth.

With an unofficial deadline for House of Representatives passage of Trump's "one big beautiful bill" barely two weeks away, Republicans are voicing doubts about whether the provisions of the 2017 Tax Cuts and Jobs Act that are set to expire at year-end can be made permanent without ballooning the $36 trillion U.S. debt and $1.9 trillion annual deficit.

Party moderates are pushing back against large-scale cuts to the Medicaid healthcare program that would be necessary to achieve a goal of $2 trillion in offsetting spending cuts over the next decade, while hardliners are demanding that the tax cuts be scaled back if that number can't be met.

"To fully extend and build upon the 2017 tax cuts, this means that the reconciliation bill must include at least $2 trillion in verifiable savings either through spending reductions or scaling back the size of the tax package," 32 House Republican hardliners told party leaders in a letter on Wednesday.

Top Republicans argue the tax cuts will help pay for themselves by generating sustained GDP growth of 2.6% that they say will add $2.5 trillion in new revenue over a decade, helped by Trump's deregulatory moves. Budget analysts call those forecasts overly optimistic, particularly as Trump's trade war and crackdown on immigration -- which will tighten the labor market -- threaten to pinch the economy.

Republican lawmakers argued in 2017 that Trump's tax cuts would pay for themselves by boosting growth, but a review by the nonpartisan Committee for a Responsible Federal Budget found that they added about $1.9 trillion to the national debt.

"We're in a very different circumstance and a very different fiscal environment than we were then," said Jonathan Burks, who was a top aide to Republican former House Speaker Paul Ryan when the Trump tax cuts were enacted eight years ago and now works at the Bipartisan Policy Center. "The capacity of the economy to sort of withstand that level of additional debt is a real question mark."

Burks estimated that Trump's tax cut proposals, which also include exempting tips, overtime and Social Security benefits, could cost as much as $6 trillion over a decade.

U.S. President Donald Trump is set to announce a trade deal between the United States and the United Kingdom on Thursday.

House Speaker Mike Johnson, of Louisiana, told reporters this week that making all of the 2017 tax cuts permanent remains "a governing principle."

Nine Senate Republicans including Majority Leader John Thune, of South Dakota, vowed in a February letter to Trump that they would not support a temporary extension.

Republicans hold a 53-47 majority in the Senate and a 220-213 edge in the House, and so far have not rebuffed any of Trump's major requests. The White House did not respond to a Reuters query seeking comment on the prospects for tax permanence.

But even before Wednesday's letter from hardliners, House Republicans had begun to raise doubts about whether all of the 2017 cuts could be made permanent.

"The president would like that. I think it should be extended. But we've got to take a look at what it's going to cost to do all of this. We did run a $2 trillion deficit. These things are very real," said Representative Vern Buchanan, of Florida, a senior member of the tax-writing House Ways & Means Committee.

House Majority Leader Steve Scalise, of Louisiana, said lawmakers might simply extend the 2017 tax cuts for another decade, adding, "Once you get this bill passed, we think we will get at least 2.6% economic growth, if not more."

'DOESN'T ADD UP'

Democrats say Republicans are pursuing a tax-cut agenda that will only end up harming those who rely on government programs for healthcare and food stamps while deepening the federal deficit.

"The math doesn't add up, and they just can't seem to face that. They need to tell the president: we can't do this and not balloon the deficit, and we can't do this and not harm people," said Representative Madeleine Dean, a Pennsylvania Democrat on the House Appropriations Committee, which oversees spending.

Erica York, vice president of federal tax policy at the nonpartisan Tax Foundation, said the economy could grow by 1.1% over the long run as a result of pro-growth sections of the emerging tax package - 100% immediate expensing for machinery and equipment, deductions for research and development costs and cost-recovery for manufacturing facilities.

But the downward impact of Trump's tariffs and potential retaliation from U.S. trading partners could eliminate those gains.

"They need to have twin goals of being pro-growth and being fiscally responsible," York said. "It probably means not just a wholesale extension, but looking provision by provision at what's really geared at growth."

The Tax Foundation forecasts that extending the 2017 Trump tax cuts permanently could generate about $700 billion in higher revenue from economic activity, a fraction of the $2.5 trillion projected by House Republicans.

"My worry is that when passing the tax cut bill, they'll just insert some unrealistic assumptions of economic growth and then hope no one comes back later and notices that the growth didn't come," said Jessica Riedl, a former Senate Republican aide who is now a senior fellow at the right-leaning Manhattan Institute.

"Ultimately, there's nothing in the Republican budget that would create growth at the levels they are projecting."

Source: Reuters

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Adam

Economic

Central Bank

The Bank of England cut interest rates on Thursday in a move likely to bring relief to borrowers, businesses and hard-pressed consumers across the country.

The central bank reduced its key interest rate from 4.5% to 4.25% at its latest monetary policy meeting amid a backdrop of lackluster economic growth and uncertainty around President Donald Trump’s trade tariffs.

The cut had been widely expected, especially after a slowdown in price rises, with inflation cooling to 2.6% in the twelve months to March (from 2.8% the previous month).

Five of the BOE’s nine policymakers voted for the cut, with two members wanting a larger 50 basis-point reduction, and two wanting to keep rates on hold.

The BOE said Thursday that uncertainty surrounding global trade policies had intensified since the imposition of U.S. tariffs and subsequent retaliatory measures. The “prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller,” it added.

Many British households and firms will be thankful for the rate cut as it will make borrowing money a little less expensive. Savers, who reap the benefits of higher rates of interest on their savings accounts, stand to lose out.

“Just as the response to rate hikes was textbook — slower growth, soft housing market activity and higher saving, the response to rate cuts should also be textbook,” Kallum Pickering, chief economist at Peel Hunt told CNBC Thursday.

“Business and consumers hold significant cash balances while debt-to-income ratios are at multi-decade lows. By easing the brakes on an economy full of pent-up potential, expect a positive response in investment, spending and housing activity,” he said.

Here’s a quick look at the winners and losers from the Bank of England’s latest rate cut:

Homeowners

A 25-basis-point reduction in the Bank of England’s base rate will be a boon for anyone looking to buy a new home and get a cheaper “fixed-rate” mortgage deal from a bank or lender, or for those re-mortgaging and looking for new deals after their fixed-rate term expires.

Residential mortgages with a fixed rate make up the bulk (85%) of existing mortgages, according to data from UK Finance released Thursday. Of the total number of fixed-rate deals, UK Finance analysis shows that around 1.6 million will end in total in 2025, meaning the latest drop in the Bank of England’s key rate will be good news for those looking to find a new offer.

Of course, households that already have a fixed monthly mortgage won’t feel the benefit of an interest rate cut. As of Thursday, the average 2-year fixed mortgage rate was 4.66% while the average 5-year fixed rate was 4.61%, according to data from Rightmove.

A cut is good news for the 591,000 homeowners in the U.K. on a “tracker” mortgage rate, however, that rises or falls with the Bank of England’s base rate. A 25-basis-point cut translates to a £29 reduction in monthly payments for the average customer on a tracker, UK Finance states.

A 25 basis point cut “brings some relief, particularly for those on tracker and variable-rate products, who should see an immediate reduction in monthly repayments,” U.K. mortgage expert Nicholas Mendes from John Charcol in London said in emailed comments.

“While fixed rates have already priced in much of this decision, the cut will support sentiment in the housing market at a time when affordability has been stretched and buyer activity has slowed. It also gives lenders a bit more breathing room to remain competitive, which could help stimulate demand, especially among first-time buyers” he added.

Consumers and businesses

Lower interest rates will also be welcomed by consumers looking to borrow money for other things, with a potential reduction in interest on credit cards and personal loans, although this is dependent on your personal circumstances including credit history.

British firms and consumers will also get some respite from the central bank’s decision, as lower interest rates can also translate into cheaper borrowing and cheaper repayments on business loans, freeing up cash for investment and growth.

Businesses will hope that lower rates will boost consumer confidence and spending, too. This will be a particular bonus for the U.K.’s 5.5 million small and medium-sized enterprises recently hit with a rise in the national minimum wage and higher National Insurance contributions, announced in the Labour government’s budget.

At the same time, however, any wider economic downturn on the back of U.S.-led trade tariffs and export costs and a predicted bump in inflation as energy price rises spike (albeit temporarily) could dent consumer confidence and business sentiment.

“The U.K. economy’s cyclical pulse has been strengthening a little in the last few months. Household incomes have continued to grow faster than inflation and that has been showing up in consumption,” Will Hobbs from Barclays Private Bank and Wealth Management noted Thursday, although he added that “the uncertainty created by the U.S. tariffs will certainly have some dampening effect.”

It means many Brits could be reluctant to splurge the cash, mindful of the still-elevated cost of living after the price of basic goods and energy spiked following the war in Ukraine.

While the pace of price rises has slowed in recent months, the Bank of England warned in March of a short-term spike in inflation this year, mainly due to rising energy costs.

That led the central bank to warn that any interest rate cuts would be “gradual and careful” as it looks to bring the rate of inflation down to its target of 2%. The pace of rate cuts could be subject to change, however, if U.S. trade tariffs dampen global demand and hit U.K. growth more than expected.

“Back in February, the medium-term economic and inflation outlook as well as the balance of risks argued for the BOE to keep the pace at one per quarter for 2025,” Peel Hunt’s Kallum Pickering noted Thursday. “A lot has changed since then — and if there was ever an opportunity to shift the policy narrative, this would be it.”

“A likely diversion of cheap Chinese goods into Europe, plus lower energy prices due to softer global demand, and lower import prices from a rising sterling will all help to keep a lid on UK prices,” Pickering noted.

“Moreover, an additional fear factor coming from increased uncertainty will likely dampen wage and price setting. In our view, we believe that markets and the broader economy would respond positively to the BOE cutting rates this week and signaling a succession of rate cuts to come.”

Source: cnbc

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Michelle

Economic

Forex

Applications for US unemployment benefits fell last week after a short-term spike coinciding with spring recess and the Easter holiday at the end of April.

Initial claims decreased by 13,000 to 228,000 in the week ended May 3. That was roughly in line with the median forecast in a Bloomberg survey of economists.

Continuing claims, a proxy for the number of people receiving benefits, also fell, to 1.88 million, in the previous week, according to Labor Department data released Thursday.

Jobless claims have remained largely subdued, indicating low levels of layoffs despite increased economic uncertainty amid tariffs and the ripple effects from the Trump administration’s actions to shrink the federal government.

Though tariffs could lead to higher unemployment and inflation, the labor market remains solid, Federal Reserve Chair Jerome Powell said Wednesday after central bankers held interest rates unchanged.

“People are feeling stress and concern. But unemployment hasn’t gone up, job creation is fine, wages are in good shape,” Powell said. “Initial claims for unemployment are not increasing in any kind of impressive way. So, the economy itself is still in solid shape.”

The four-week moving average of new applications, a metric that helps smooth out volatility, was little changed.

Before adjusting for seasonal factors, initial claims fell last week. A decline in New York filings accounted for most of the overall decrease. That state had seen a surge in the previous period around spring recess when some school workers, including bus drivers and janitors, can apply for benefits.

Source: Bloomberg Europe

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Michelle

Economic

Forex

If you want to know what the markets are going to do next, your best bet would be to look at the U.S. President’s Truth.Social account.

From fiery posts targeting Fed Chair Jerome Powell to bold declarations of a coming “GOLDEN AGE,” Trump’s words make everyone turn heads. And crypto remains in the middle of all the action.

Let’s unpack.

“The Golden Age Of America Is Coming”

Donald Trump’s post today might seem to fit in well with his overall optimism, but it ties well into a bigger push: his promise to bring down inflation, cut energy costs, and reset America’s financial direction.

By publicly slamming Powell, he signaled frustration with the Fed’s pace. Notably, this isn’t the first time Trump has lashed out - he previously hinted at a strong desire to “fire” the Fed chair as well.

“Too Late” Jerome Powell is a FOOL, who doesn’t have a clue. Other than that, I like him very much! Oil and Energy way down, almost all costs (groceries and “eggs”) down, virtually NO INFLATION, Tariff Money Pouring Into the U.S. — THE EXACT OPPOSITE OF “TOO LATE!” ENJOY!

The UK Trade Deal: Trump’s Economic Playbook In the Making

In a surprise move, Trump announced a “full and comprehensive” trade deal with the UK - the first since his aggressive tariff strategy rattled markets last month. His post emphasizes history and loyalty, but the timing is tactical. After markets reacted poorly to the blanket 10% tariff rollout, this deal offers reassurance that friendly nations aren’t being iced out entirely.

It’s the kind of pivot that shows Trump knows how to rattle markets and then reel them back in. Phew.

"The agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United states and the United Kingdom for many years to come. Because of our long time history and allegiance together, it is a great honor to have the United Kingdom as our FIRST announcement. Many other deals, which are in serious stages of negotiation, to follow!," Trump wrote.

Crypto Under Trump: Thriving and Flourishing?!

Since his return to the White House, Trump has taken an unusually pro-crypto stance. He launched his own meme coin, pushed for a national crypto reserve, and signed an executive order to build a clearer regulatory framework.

SEC Chair Paul Atkins is on board too, with a dedicated task force to stop the “regulation by enforcement” chaos.

But it’s not all applause.

Controversy? Of Course. It’s Trump.

Democrats are sounding alarms about conflicts of interest, especially around the $TRUMP coin and its ties to the White House. A dinner contest for top token holders raised eyebrows - and the token’s price. With 80% of the supply linked to the Trump Organization, watchdogs are calling it a “pay-to-play” scheme.

Still, love him or hate him, Trump’s strategy is already reshaping trade, markets, and crypto.

Source: CryptoSlate

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Warren Takunda

Economic

Bank of England policymakers have cut interest rates by a quarter point to 4.25% to cushion the UK economy against the impact of Donald Trump’s trade war.

The widely expected move from the Bank’s monetary policy committee (MPC), its fourth cut since last August, also carried a warning that the UK economy would slow by a further 0.3% over the next two years in addition to dramatic cuts to its forecasts earlier this year.

In a blow to the chancellor, Rachel Reeves, the MPC said a combination of uncertainty surrounding the impact of US trade policy and clouds hanging over the UK economy meant economic growth would be almost stagnant for the rest of the year.

Economic growth “is judged to have slowed and is expected to remain subdued in the near term”, the Bank said.

In a split vote, with two of the nine-member MPC voting for a bigger 0.5 percentage point cut and two voting to keep rates held at 4.5%, the Bank signalled a high degree of caution about the number of interest rate cuts over the rest of the year.

Before the rates announcement, financial markets expected at least two further quarter-point cuts in borrowing costs this year.

However, concern that inflation will persist above a 2% target into 2026 led the National Institute of Economic and Social Research to say this week that the Bank would be limited to just one cut this year.

The Bank’s governor, Andrew Bailey, said: “Inflationary pressures have continued to ease so we have been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be.

“That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”

The Bank said its latest quarterly forecasts were based on the current tariff situation and did not take account of a proposed deal between government ministers and the White House, expected to be announced on Thursday.

The UK is in negotiations with Washington about potentially winning an exemption from the 25% import charges that Trump has imposed on foreign cars and steel, in exchange for concessions.

But the chancellor has made clear that even if the UK secures a carve-out, the country would still be affected by the global slowdown expected to result from the trade war.

As well as monitoring the impact of trade policy, the Bank’s rate-setters said Reeves’s £25bn increase in employer national insurance contributions, which came into force last month, would affect employment, wages and prices, though it remained unclear to what extent.

MPC members were more concerned that a spike in inflation this year, largely due to higher council tax and utility bills, would provoke a disproportionate response from consumers already battered by a long period of rising prices.

Inflation is expected to peak in the third quarter at an average 3.5%, down from previous forecasts of 3.7%, largely in response to cheaper goods being redirected to the UK from China and other countries hit by US tariffs.

“World export prices are expected to be materially weaker, particularly in China,” the Bank said, adding: “The current overall impact of trade developments on the UK is therefore likely to be disinflationary than inflationary.”

Despite the lower peak in inflation, households could fear a more persistent rise in prices and focus their spending on essential items, limiting the amount of disposable income spent on big-ticket goods, depressing the economy further.

Inflation is not expected to ease to the MPC’s 2% target until spring 2027.

The Bank’s outlook follows a run of downbeat data on the UK economy, with surveys suggesting consumer and business confidence is weakening.

The Bank said the result would be “subdued” growth in business investment, which is likely to put a brake on hoped-for increases in the UK’s productivity.

Source: Theguardian

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Glendon

Political

Israel launched dozens of airstrikes in south Lebanon on Thursday, in one of its heaviest bombardments of the region since a ceasefire ended last year's war with the Iran-backed Hezbollah.

The Israeli military said it had hit a Hezbollah infrastructure site in the south. There was no immediate comment from Hezbollah, which has previously said that it withdrew all its forces from the south in line with the U.S.-brokered truce.

Lebanon's Health Ministry said at least one person was killed and another eight wounded in the strikes. Thick columns of smoke rose from the hilltops hit in the attacks in the Nabatieh region, some 12 km (8 miles) from the border.

Israel, which inflicted huge damage on Hezbollah during last year's war, has been carrying out airstrikes in south Lebanon on a regular basis since the ceasefire, and has also struck the Hezbollah-controlled southern suburbs of Beirut several times.

The ceasefire terms require that neither Hezbollah nor any other armed group have weapons in areas near the border south of the Litani river, which flows into the Mediterranean some 20 km (12 miles) north of the Israeli border. They require Israel to withdraw troops from the south and that the Lebanese army deploy into the border region.

Lebanon and Israel have accused each other of failing to fully implement the deal. Israel still has troops on five hilltop positions in the south. Rockets have been fired from Lebanon towards Israel twice, though Hezbollah denied any role.

Hezbollah leader Naim Qassem has said the group has no more weapons in south Lebanon, in line with the ceasefire terms.

Lebanese authorities have detained Palestinian militants, including Hamas members, accused of firing rockets towards Israel from Lebanon on two occasions since the ceasefire.

Both attacks prompted Israeli airstrikes on Beirut's southern suburbs.

Israel killed thousands of Hezbollah fighters in the war, destroyed much of its arsenal and eliminated top leaders, including Hassan Nasrallah.

The war spiraled after Hezbollah opened fire at the beginning of the Gaza war, declaring solidarity with its Palestinian ally Hamas.

Source: Reuters

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Gerik

Economic

China–U.S. Trade War

Export Paralysis as U.S.-China Tariffs Collapse Order Books

The latest escalation in the U.S.-China trade war is wreaking havoc on the global supply chain for consumer goods. U.S. President Donald Trump's sweeping tariffs have effectively shut the door on Chinese exports to America, paralyzing a key artery of the world’s trade system. Chinese exporters—from holiday decorations to metal goods—are now facing a tsunami of canceled contracts and unsold inventory. In turn, American firms are finding it nearly impossible to quickly source replacements for China’s deeply entrenched manufacturing capabilities.

Factories across Guangdong, Shenzhen, and Dongguan are reporting mass layoffs, halted production lines, and desperate fire sales. Some companies have resorted to livestreaming their liquidation efforts straight from the ports, slashing prices by up to 80% in an attempt to recover sunk costs. Others, faced with rejected shipments, have no choice but to abandon goods mid-journey or discard them altogether.

Supply Chain Breakdown: A Feedback Loop of Disruption

What’s unfolding is not just a short-term trade disruption but a structural shock to the global consumer goods economy. The tariffs have produced a domino effect across both ends of the Pacific. Chinese suppliers are cash-starved and overloaded with unsellable inventory, while American buyers are trapped between skyrocketing costs and dwindling options.

Importers like Robert Bohrer, previously reliant on Chinese machining services, are facing rising input costs and order fulfillment failures. Although alternatives like India and Taiwan are being explored, the scalability and price competitiveness of China’s mature industrial ecosystem remain unmatched. Products like holiday décor, fireworks, and custom components are either unavailable or prohibitively expensive elsewhere. This underlines a practical interdependence that policy alone cannot unravel quickly.

The situation reflects a clear sequential relationship between tariff hikes, order cancellations, supply shortages, and price inflation. The longer the trade impasse continues, the deeper these supply disruptions will embed into retail cycles, especially as the U.S. approaches its back-to-school and holiday shopping periods.

Economic Pain Beyond China’s Borders

The shock is not confined to China. U.S. retailers, including e-commerce giants like Amazon, are halting purchases altogether, unsure of the real landed cost of goods amid volatile tariffs. Companies like Mindscope Products and MGA Entertainment are freezing future production runs, anticipating both demand uncertainty and cost pressure. For SMEs, capital once locked in deposits or tooling has become a sunk cost.

Although larger firms may hedge or diversify, small and mid-sized exporters are less resilient. One such case is King Tree Handicraft, which reduced its workforce by 80% due to near-total evaporation of American orders. Clothing manufacturers like Dongguan Bolin are turning to short-form video platforms like Douyin to clear stock at cost, if not below.

Even where partial payments are being honored—as seen in George Balanchi’s continued support of his supplier Alan Chau—the underlying reality is grim. Chau’s revenue has plunged to 15% of the previous year, and his staff count has shrunk from 200 to just 20.

Implications for Global Trade and Inflation

Data from the International Trade Centre shows that up to 97% of fireworks and 87% of holiday décor imported into the U.S. comes from China, illustrating the extent of product-specific dependence. While reshoring and diversification are goals, their realization will be slow, and often costlier.

The substitution gap highlights a key point: the issue is not just about finding new suppliers, but about replicating complex, low-cost, large-scale supply chains—something that few other nations are currently positioned to offer. The resulting mismatch in supply and demand will likely manifest in retail shortages and higher consumer prices in the U.S., especially for discretionary seasonal goods.

As Trump's administration pushes forward with a protectionist agenda, the tariffs are not only disrupting trade volumes but also reshaping business decisions. The cost of political reordering, however, is falling disproportionately on private enterprises, workers, and consumers on both sides.

While the Trump administration frames this phase as a necessary “transition,” the evidence suggests a more complex fallout. Businesses in both nations are navigating a landscape defined by policy uncertainty, logistical constraints, and squeezed margins. Without a clear resolution or phased rollback, the risk of long-term structural damage to trade flows—and a loss of trust among global partners—remains high.