Cozen Currents: The Certainty and Uncertainty of Trump Walking It Back

“While the financial markets have become comfortable with dismissing the tail risks associated with the president’s boldest policy proposals, President Trump has successfully enacted ambitious policy proposals, albeit perhaps not as aggressive as initially proposed.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump has regularly moderated some of his boldest policy proposals after experiencing pushback, resulting in policy wins that may have otherwise been unachievable, but at the same time creating significant policy uncertainty over long-term business decisions.
• With government spending already tracking well above FY24 levels, the spotlight is turning to the GOP’s domestic policy agenda and its projected several trillion dollar deficit impact.
• With a goal of quadrupling the size of the country’s nuclear power capacity in just 25 years, the Trump administration aims to usher in a nuclear renaissance.

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The Art of the Deal?

Trump’s Pattern of Backpedaling. President Trump has built a reputation early in his second administration of proposing bold policies, only to then moderate them after encountering pushback.

• One of Trump’s core negotiating tactics is anchoring negotiations by shifting the conversation closer to his eventual end goal. In office, this strategy has translated into him aggressively making bold proclamations and policy proposals, only to walk them back soon thereafter to a more moderate position, especially in the face of market and economic pressures.
• In Trump’s second term, this strategy has become especially apparent in the president’s approach to trade and tariff policy. It has even led to a Financial Times columnist nicknaming it as “the Taco theory: Trump Always Chickens Out.” Unsurprisingly, Trump pushed back on the reporting when asked about this nomenclature, describing the question as “nasty.”

Trump Is Not Empty-Handed. While this strategy has created significant uncertainty, it has worked to deliver policy victories that would likely have been harder to achieve if Trump were trying to go straight to the moderated position from the start rather than backing into it.

• As disruptive as this approach from Trump is, it is hard to argue that it has not delivered some meaningful policy wins for the president. While these wins are typically moderated versions of his initial proposal, the result is still a form of the policy he sought to enact. The tariffs on China offer one example of this: he had raised duties so high that now the tariffs only being an across-the-board 30 percent increase feels like relief from the 145 percent level they were at. On the other hand, if Trump had started with the 30 percent, there likely would have been greater pushback against that level rather than the sense of relief that was felt.
• By enacting some of these bold proposals, Trump has created enough credibility that the ideas he suggests cannot be dismissed. An example is the president’s reciprocal tariffs, which ended up only being in place at their maximum extent for a few hours before backtracking in the face of pressure from the financial markets. However, the result was not a total rollback of the tariffs. Instead, it set all countries to a 10 percent universal tariff, a policy that Trump had focused on extensively during the campaign rather than reciprocal duties.

The Silver Lining. The policy uncertainty created by Trump’s approach makes for a difficult business environment due to the challenges it poses for long-term planning. However, knowing that there are openings for relief from these bold proposals creates opportunities to emerge as one of the winners of those concessions.

• While there are eventual victories for the business community in Trump’s approach of moderating his initial proposals, the initial uncertainty casts a significant overhang over long-term decision-making. The difficulty of this style for corporations is that it is challenging to plan for what relief Trump will offer and when. Even when a sector may be on his good side, there is often a need to lobby the president for exemptions, as the auto industry did on the president’s auto parts tariffs.
• Still, even if there isn’t complete confidence in where Trump will end up, knowing that there will be moderation of his most extreme proposals creates an opening for businesses to secure victories, if they can frame their pitch in a way that appeals to the president. For the auto industry, a key part of their argument was that relief on auto parts tariffs would better enable them to increase production in the US, and thus granting an exemption would help achieve Trump’s long-term goal of boosting domestic auto manufacturing. On many of these issues, Trump is the final decision-maker. So, a critical part of success will be portraying how his concession can offer a bigger win for his agenda in the long run.

The Politics of the Deficit

The Cost of the GOP’s Reconciliation Bill. Despite jitters in the bond markets and Moody’s decision to downgrade the US’s credit rating, GOP lawmakers on Capitol Hill are moving forward with a domestic policy package that’s projected to increase the deficit by several trillion dollars.

• The Committee for a Responsible Federal Budget (CRFB) estimates that the House-passed reconciliation bill, a legislative package that combines the GOP’s domestic tax and spending agenda into one bill, would increase the deficit by roughly $3.8 trillion. Such a deficit impact would accelerate Congressional Budget Office (CBO) projections for US debt to exceed 118 percent of GDP by 2035, making the federal deficit nearly six percent of GDP in the same year, roughly double Treasury Secretary Scott Bessent’s economic targets. Those worsening projections for the US’s debt outlook factored into Moody’s May decision to downgrade the country’s credit rating.
• The hefty price tag of the GOP’s reconciliation bill comes despite pressure from fiscal hawks in the House to offset the bill’s spending and tax provisions with cuts to government programs. While the fiscal hawks were able to secure more than $1.5 trillion in cuts to green energy tax credits, Medicaid spending, and more, the savings won’t come close to offsetting the bill’s roughly $3.8 trillion in tax cuts alongside its several hundred billion dollars in defense and border spending.
• Importantly, the true cost of the bill may be hidden by a decision to make many of the tax cuts temporary. A number of President Trump’s tax proposals geared toward working class Americans, such as no taxes on tipped wages and overtime pay, are set to expire at the end of 2028. That will put significant pressure on a future Congress to extend the cuts, thereby increasing their total deficit impact. The CRFB estimates that if the full bill is made permanent, it would add $5.2 trillion to the deficit, roughly $1.4 trillion more than the bill’s current deficit impact as written.

Banking on Economic Growth. While the spending cut provisions of the reconciliation bill won’t offset its multi-trillion dollar cost, the White House and GOP leadership argue that the bill’s economic growth, revenue from tariffs, and separate cuts to government spending will make up the difference.

• Since House GOP lawmakers first unveiled the fiscal framework for the party’s reconciliation bill, both leadership and the White House have argued that $2.5 trillion of the bill’s deficit impact would be offset by economic growth. White House National Economic Council Director Kevin Hassett told Fox News last month that the bill would pay for itself by pushing annual GDP growth north of three percent. The Council of Economic Advisors released an analysis suggesting that the bill’s impact on economic growth could be even more significant. The White House has separately championed tariff revenue and a commitment to cut wasteful spending identified by DOGE as other avenues through which the bill’s deficit impact will be mitigated.
• The Joint Committee on Taxation, however, projects that the bill would increase GDP by only .03 percent, or $103 billion in additional tax receipts for the government, over the next 10 years. That would bring the average annual growth rate to 1.86 percent, less than the three percent GDP growth and several trillion dollars worth of economic stimulus the White House is projecting. A package made up of proposed rescissions of congressional spending identified by DOGE, which the White House plans to send to the Hill for approval as soon as this week, would only cut roughly $9 billion in federal spending. And whether the tariffs generate their full potential of $1.7 to $2 trillion in revenue over the next 10 years will depend both on the courts and the whims of the next administration.
• While the White House plans to continue to champion future cuts to federal spending and the bill’s economic growth as offsets to its deficit impact, the reality is that Trump has never been a stickler for the deficit. With the fate of the president’s domestic policy agenda hanging in the balance and midterm elections just over a year away, failure is not an option for GOP lawmakers. As such, concerns over the bill’s deficit impact can only hold it up for so long.

Trump Goes Nuclear

Nuclear Rises to the Forefront. The policy around rising electricity demand and the politics around energy independence are creating a consensus among lawmakers that a nuclear renaissance is needed.

• After decades of flat electricity consumption, US energy demand is now projected to spike 24 to 29 percent by 2035, nearly twice the rate estimated one year ago. A combination of new investments in AI data centers, manufacturing, and broader electrification are the primary drivers behind this projected increase, with data centers alone accounting for 30 percent of the expected growth, according to a Goldman Sachs report last April. The top five US firms’ capex spending on centers topped $100 billion in 2023 and that number is only trending
• The industry’s dream solution is having dedicated small modular nuclear reactors (SMRs) on-site for large centers. Rather than rely on the grid, they aim to build their own personal facilities for consistent prices and energy supply. Nuclear power, unlike solar or wind, is reliably constant at all times of day — a necessity for servers that can’t go down and a top reason Republicans prefer it greatly over traditional renewables. And while it’s not technically renewable, atomic energy is zero-carbon, allowing these firms to move towards satisfying their net-zero pledges and pleasing Democrats on the other side of the aisle.
• A problem though is that the US just doesn’t build nuclear power anymore. Two reactors recently constructed in Georgia are the only ones constructed since the 1980s. Some point the blame at the thicket of safety regulations required. Those two reactors were seven years late and $18 billion over budget. The other issue is that SMR technology is not quite there yet in the short to medium term. While the idea would be everything the tech industry is looking for, and despite a significant and bipartisan amount of federal support in R&D, the most promising US SMR projects aren’t expected to come online for several years.

Pulling Out All the Stops. The White House is balancing executive orders promoting nuclear development as the latter tries to not get caught up in the renewable blowback crossfire.

• The administration released four executive orders last month amounting to a full-court press to get new nuclear energy plants up and running. One provision instructs the Department of Energy (DOE) to work with the industry to facilitate reactor upgrades and ten new reactors, using the Loan Programs Office to get projects going. DOE is also asked to approve private reactors for agency sites to power designated AI data centers. The Nuclear Regulatory Commission will be reorganized, see major staff reductions, and, with the help of its DOGE team, work to streamline the current licensing and authorization processes. Fast-tracking environmental and permitting reviews is yet another priority.
• Much of this help, however, is purely regulatory, at a time when the reconciliation tax cut bill has put actual federal funding for nuclear energy at risk. Along with the other tech-neutral production and investment credits for clean energy, the House-passed bill would phase out support for advanced nuclear projects by 2028. The 45U credit for existing reactors would be phased out a year earlier than currently planned (2031 rather than 2032). This likely represents nuclear’s nadir, as there will be pressure from the Senate to keep more of the energy credits. But it does reflect that even as the White House claims to support a nuclear renaissance, other actions — like cutting money for the DOE’s Loan Programs Office — could be working in the opposite direction.

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