Cozen Currents: The Art of the Tariffs

“While President Donald Trump’s love of tariffs is often attributed to his desire for leverage in negotiations, the ones he seeks to use to reshore manufacturing are inherently intended to be non-negotiable.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump quickly paused his reciprocal tariffs at 10 percent in the face of market reaction, but he may be less willing to blink on his sector-specific tariffs.
• One of the largest remaining hurdles to passing Republicans’ “big, beautiful bill” is the need to find a compromise between fiscal hawks’ desire to include $1.5 trillion in mandatory spending cuts and moderates’ preference for a much lower number.
• President Trump’s vision of US energy dominance by boosting fossil fuel production is running headfirst into his own policies.

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How to Think About Trump’s Sectoral Tariffs

Trump’s Reshoring Tariffs. While President Trump has ratcheted back his reciprocal tariffs from their maximum for at least 90 days, it does not mean that all of his tariff plans are on pause, with new sectoral duties in the works.

• In Trump’s view, these sectoral tariffs play an essential role as they are intended to incentivize companies in strategic sectors to increase their production in the US. This reshoring motivation means the duties would need to be permanent, as there is no easy win that other countries can offer Trump to encourage him to lift them.
• Trump has already expanded the steel and aluminum tariffs he imposed during his first term, increasing the number of covered goods, raising the tariff rate on aluminum, and eliminating previous exemptions. In addition, he imposed new tariffs on the auto sector, which came into effect this month for vehicles and will expand to cover auto parts in early May.

The Next Wave of Tariffs. Trump has repeatedly stated that he intends to impose sectoral tariffs on a wide range of industries, and his administration has already started the process for duties on lumber, copper, semiconductors, and pharmaceuticals.

• Trump is using his authorities under Section 232 to impose these sectoral duties, which puts them on more solid legal footing relative to the reciprocal tariffs, but it means that they cannot come into force as soon as they are announced like the reciprocal tariffs. Instead, the Commerce Department has to complete an investigation first, which traditionally can take up to nine months. However, the Trump administration is looking to move faster in most cases, aiming to have the tariffs announced just a few months after the investigations start.
• Section 232 allows for various trade-related measures to be imposed, including quotas, but Trump has relied on blanket tariffs instead. So far, these sectoral duties have been consistently imposed at 25 percent, and the White House has offered no indication that it intends to deviate from that for future tariffs. In some cases, Trump has even suggested that rates could go higher, though higher than 25 percent is unlikely to be a starting point for any of these tariffs.

Winning Relief. Given the intended permanent nature of these tariffs, it is more likely that any relief will be provided through exemptions for specific goods rather than country-wide relief, as Trump offered during his first term.

• So far, Trump has given no exemptions to his current sectoral tariffs. However, he expressed an openness to providing temporary exemptions for the tariffs on auto parts that take effect next month. While Trump did not offer many details of what this may look like, he seemed to consider this relief as a way to help the companies he sees working to increase their share of manufacturing in the US. This alignment with Trump’s end goal of being rewarded with relief shows one possible path to exemptions.
• How successful similar arguments may be on other duties will likely depend on the positioning of domestic manufacturers, and how much of a domestic industry that is benefiting from the duties exists. For example, in the case of steel and aluminum, while the tariffs may also be hurting the auto sector, a larger set of businesses benefit from the protection the duties provide than in the case of tariffs on auto parts.
• A key question in determining how willing Trump will be to offer exemptions is his sympathy for a given industry’s struggles stemming from the tariffs, which will likely vary across sectors. For example, on pharmaceuticals, the president may be particularly sensitive to potential price increases or supply shortages that could disproportionately affect seniors, a key voting bloc for Trump and Republicans, making him more willing to consider exemptions that protect this group.

The $1.5 Trillion Question

The Politics of Spending Cuts. Ever since the GOP first launched into the process of drafting its tax cuts, spending, and debt limit-focused reconciliation bill early this year, House Speaker Mike Johnson (R-LA) and Senate Majority Leader John Thune (R-SD) have been caught in the middle of a fight between fiscal hawks and moderates over spending cuts.

• While a tax bill with reforms to border security, energy policy, and defense spending has been a top priority of the GOP’s since last year, for fiscal hawks within the party, winning a governing trifecta last November meant something entirely different: a chance to reduce the federal budget. It’s for that reason that when the House Budget Committee unveiled its framework for a tax and spending-focused reconciliation bill in February, it included instructions to the House’s committees requiring a minimum of $1.5 trillion in cuts to federal spending. Fiscal hawks in the House promised to vote against the final bill if those savings targets weren’t achieved.
• Moderate GOP lawmakers have balked at the $1.5 trillion spending cut target, recognizing that to achieve it, Congress would need to make cuts to popular programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP). Fortunately for them, the Senate modified the House’s reconciliation framework in April, lowering the minimum amount of spending cuts required to only $4 billion, although Senate GOP leadership has promised to aim for a higher number. That’s set up a bitter fight with fiscal hawks in the House who claim that despite the Senate’s changes, Johnson has promised them he will ensure that the final bill abides by the $1.5 trillion spending cut floor.
• With Johnson and the White House hoping to finish work on the reconciliation bill by early summer, the question is, which side of the spending cut debate will give in? The House and Senate need to agree to the same version of the reconciliation bill before it can become law, but with the GOP’s slim margins in each chamber, particularly in the House, just a handful of disgruntled lawmakers can prevent it from becoming a reality.

How the Cuts Could Play Out. Achieving $1.5 trillion in cuts would require sweeping changes to Medicaid, SNAP, and student loan relief programs, some of which moderate GOP lawmakers have already indicated they would oppose.

• The largest portion of the House’s $1.5 trillion spending cut target comes from the House Energy and Commerce (E&C) Committee, which is tasked with cutting a net $880 billion in federal spending. As the Congressional Budget Office (CBO) wrote in a March letter, roughly 93 percent of the spending from federal programs within the E&C Committee’s jurisdiction is from Medicaid (assuming Medicare reform is off the table as President Trump has suggested), indicating that the majority of the $880 billion in savings would need to come from changes to the Medicaid program. While House GOP moderates have signaled openness to adding work requirements to Medicaid and increasing the frequency of eligibility checks, they’ve, as recently as last week, gone public with their opposition to reforms that would eliminate Medicaid benefits. That could rule out broader changes to the program, such as lowering the federal matching funds for expansion states that are needed to achieve the $880 billion savings target.
• A similar battle between moderates and fiscal hawks is playing out in the House Agriculture Committee which is targeting $230 billion in savings. While moderates have once again signaled openness to expanding the already existing work requirements on SNAP, the largest program within the committee’s jurisdiction, CBO projects the change would only generate a few billion in revenue. Achieving $230 billion in savings would require more sweeping changes to SNAP that would reduce benefits, something GOP moderates have traditionally opposed.
• Even in areas where there is more agreement on spending cuts, compromise could be elusive. Of the $330 billion in spending that House lawmakers are aiming to eliminate from the jurisdiction of the Education and Workforce Committee, about half would come from a repeal of a Biden-era student loan relief program. The rest would need to come from more controversial reforms to traditional student loan programs. Over in the E&C Committee, lawmakers want to generate $100 billion in revenue from reauthorizing federal auctions of wireless spectrum, but a separate policy debate with the Pentagon over federal control of the airwaves is complicating those plans.

Trump’s Quest for Energy Dominance

There’s Good News for Oil. President Trump has been doing everything he can to boost fossil fuels.

• Big Oil and Trump are about as close as two things can get. The former was a major source of campaign funds and pre-wrote executive orders for the president to sign on Day One. Trump’s vision of energy is abundance and independence through mass domestic production, or as he likes to put it, “drill, baby, drill.”
• There are many things Trump is doing to further that goal. Emission standards on power plants, drills, and wells are going away, as are disclosure requirements. Trump aims to speed up permitting through streamlining and emergency powers. More federal land is being opened up to leases and approval to export LNG is a given. Foreign policy wins include increased sanctions on Venezuela and rely on other countries buying more American gas as part of a trade resolution.
• Then there are the things the administration is doing to hamstring renewables. The energy tax credits from the Inflation Reduction Act (IRA), especially those for electric vehicles, are vulnerable to repeal as part of the GOP’s tax cut push. They are trying to claw back funds loaned from the IRA’s Green Bank. The administration announced a temporary moratorium on solar leases on federal land and a still-ongoing pause on offshore wind leases.

But the Bad News May Be Worse. Even so, tariffs and market forces threaten to overpower the tailwinds and create serious headwinds for the industry.

• While the president’s tariffs thus far have included exemptions for energy, that doesn’t mean our trading partners feel the same. China has essentially halted all imports of LNG and propane. Talks that would hopefully end in purchases of US gas are not going well. The negative global economic impact of tariffs is increasing the chance of a slowdown or recession, sending oil prices to their lowest point since Covid. Tariffs on steel, aluminum, and other raw materials are specifically increasing the cost of building new drills and pipelines for the industry.
• While demand is down, there’s hints that global supply is rising. OPEC unexpectedly hiked output by more than expected in April as part of a long-term plan to phase out cuts. Canada and Mexico are both expanding LNG export capacity. The remaining fuel reserves in the US, meanwhile, are getting more expensive to tap. The International Energy Agency recently released a report predicting that US oil output will peak in 2027.
• The oil industry has been quiet in public but in private, “everybody’s afraid,” and lobbying for relief that is yet to come. “I have never felt more uncertainty about our business in my entire 40-plus-year career,” said one respondent to a Fed survey of the industry in March. Oil prices have fallen to levels that make building new wells only break-even according to the industry.

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