The clap on/clap off tariffs
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Quick Fix
For once, it wasn't President Donald Trump who was reversing course on a tariff regime.
A federal appeals court on Thursday reinstated Trump's 'reciprocal' tariffs on dozens of countries as it weighed the administration's request to leave the penalties in place while litigation over their legality continues. The constant whipsaw of U.S. trade policy poses a threat to the administration's leverage in talks with dozens of countries, Ari Hawkins, Daniel Desrochers Megan Messerly and Eli Stokols reported.
'We don't know how trading partners are going to fully react. It had been hit-or-miss with negotiations, and some progress has been made,' said Ronald Baumgarten, an of counsel at BakerHostetler who served as a deputy assistant U.S. Trade Representative for Southeast Asia and the Pacific during the first Trump administration. Some countries 'may not rush to lift retaliation' in light of the uncertainty, he added.
What's more, as business leaders and Wall Street grapple with even more uncertainty around the administration's trade agenda, it could accelerate widely anticipated slowdowns in hiring, investment and corporate dealmaking.
As Sam reports with Daniel and Adam Cancryn, the potential policy blowup comes at an especially vulnerable time for the economy. CEO confidence cratered in the second quarter,according to The Conference Board. The latest estimate on first-quarter economic growth reflected a slowdown in consumer spending and a plunge in corporate profits.
With that as the backdrop, corporate leaders are urging the administration to change course and refocus on delivering clear-cut, lasting trade agreements — sans chaos, preferably.
'One of the things that the administration has to offer is a guarantee of certainty with respect to current and potential future tariffs,' National Foreign Trade Council President Jake Colvin, who advocates for U.S. companies on global commerce, said after the Wednesday decision by a trade court. 'The court's ruling... is an inflection point that provides an opportunity for the administration to turn even more towards deal-making.'
Trump advisers, including National Economic Council Director Kevin Hassett, have dismissed the business world's trepidation over the administration's approach on trade as overblown. Still, Wall Street analysts are warning that more trouble could be ahead.
'Yo-yo' tariff rates are ultimately more damaging than the import duties themselves, said James Egelhof, the chief U.S. economist and managing director at BNP Paribas. And there's a possibility that Wednesday's court ruling could cause 'the administration to feel that it needs to take more aggressive or provocative action to re-establish credibility.'
'That could increase uncertainty, it could diminish investment,' he added. 'And it could prolong the period of tariff uncertainty beyond the summer.'
IT'S FRIDAY — And as always, send your tips, suggestions and personnel moves to Sam at ssutton@politico.com.
Driving the Day
The Reagan National Economic Forum kicks off. Speakers include House Financial Services Chair French Hill (R-Ark.), House Ways and Means Chair Jason Smith (R-Mo.), Senate Health Chair Bill Cassidy (R-La.), Sen. Mike Rounds (R-S.D.), Deputy Treasury Secretary Michael Faulkender and former Fed Gov. Kevin Warsh … The personal consumption expenditures index for April is out at 8:30 a.m. … The University of Michigan consumer sentiment survey is out at 10 a.m. … Atlanta Fed President Raphael Bostic speaks at the Council for Economic Education's 2025 National Economics Challenge at 12:20 p.m. …
Not fade away — Elon Musk may be stepping back from his role in the Trump administration, but his acolytes are here to stay. As Robin Bravender, Danny Nguyen and Sophia Cai report, 'some DOGE employees have been hired on as permanent government staffers and given high-ranking positions inside agencies.'
And Republican leaders are still feeling Musk's… musk — House Speaker Mike Johnson defended the GOP's 'big, beautiful bill' — which was criticized by the Tesla founder — telling Fox News that he 'sent my good friend Elon a long text message explaining it can be big and beautiful.'
— Get ready for the fight over this tax provision, per Bloomberg: 'The item … calls for, among other things, increasing tax rates for individuals and companies from countries whose tax policies the US deems 'discriminatory.' This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets.'
End of an era — Declan Harty reports that the Securities and Exchange Commission is ditching its case against the crypto behemoth Binance, which it had accused of showing 'blatant disregard' for U.S. law.
Fed File
'Anyway, what's new with you?' — Federal Reserve Chair Jerome Powell and Trump met at the White House for the first time in the president's second term, Victoria Guida reports. According to Press Secretary Karoline Leavitt, the president continued to press Powell to cut interest rates.
The Fed's decision to hold off on rate cuts 'is putting us at an economic disadvantage to China and other countries, and the president's been very vocal about that, both publicly and, now I can reveal, privately,' said Leavitt, per Bloomberg.
The Economy
Pending home sales drop –– A National Association of Realtors report released Thursday found that pending home sales decreased 6.3 percent in April.
'At this critical stage of the housing market, it is all about mortgage rates,' said NAR Chief Economist Lawrence Yun. 'Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.'
Wall Street
The bigger problem –– Bond traders are increasingly spooked by mounting levels of US government debt — and it's now a concern that holds more risk than tariffs, according to Goldman Sachs President John Waldron, Bloomberg reports.
'While all the attention was on tariffs, I think the attention rightly is shifting — certainly in the bond market — to the US budget debate and the fiscal picture, which I would characterize as somewhat concerning,' Waldron said. 'I think the big risk on the macro right now is actually not so much tariffs.'
–– Treasury yields fell on Thursday ahead of GDP and jobless claims data indicating the economy is possibly cooling, supporting the Fed's wait-and-see stance, the Wall Street Journal reports.
1MDB–– A former Goldman Sachs banker turned government cooperator was sentenced to two years in prison for his role in the looting of billions of dollars from a Malaysian sovereign-wealth fund, the Journal reports.
On The Hill
House Republicans' updated market structure bill — House Financial Services Chair French Hill on Thursday introduced a revamped version of landmark cryptocurrency legislation that seeks to overhaul how digital assets are regulated, with three Democrats on board as co-sponsors, Jasper Goodman and Katherine Hapgood report.
Huizenga still debates his Senate run — Rep. Bill Huizenga (R-Mich.), a major force on House Financial Services, has been preparing a run for Michigan's open Senate seat and plans to make a final decision this summer, Adam Wren and Lisa Kashinsky report.
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