Cozen Currents: Trump Goes All In on Tariffs

“President Trump’s reciprocal tariffs have introduced significant uncertainty into the economy. The one certainty though is that Trump loves tariffs and they will therefore likely continue to play a central role in his policymaking for the foreseeable future.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump has sought to reverse what he perceives as decades of unfair treatment of the US by its trading partners with his sweeping reciprocal tariffs, roiling financial markets, and sparking economic concern and calls for relief. However, immediate reversals seem doubtful despite the president’s openness to negotiations.
• Senate Republicans passed a budget resolution last week that procedurally advances the GOP’s top legislative priority of extending (and expanding) Trump’s tax cuts, but it relies on controversial accounting and leaves many substantive issues unresolved.
• Health and Human Services Secretary Robert F. Kennedy Jr. is evangelizing his Make America Healthy Again movement with significant implications for the pharmaceutical and food industries.

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The Path Forward for Trump’s Reciprocal Tariffs

Trump’s Tariffs’ Objectives. President Trump is trying to achieve several things with his tariffs, many of which will likely require them to last for an extended period. This suggests that despite Trump’s openness to negotiations, there may be little immediate relief.

• Trump is likely serious about using these tariffs to lower trade barriers for US exports. At the same time, he intends for them to help increase domestic manufacturing and generate revenue to pay for lower taxes.
• To achieve these latter goals, however, it has to be clear that the tariffs won’t be removed for the foreseeable future. But that conflicts with the notion that the administration is relying on the tariffs as leverage for negotiations.
• Any negotiations will likely be a slow and arduous process. Trump’s willingness to negotiate will likely depend highly on his perception of the trading partner, meaning some less well-liked entities, such as the EU, may find striking a deal more challenging than other countries.

What Could Rein in Trump. Several factors could lead to Trump beginning to moderate these policies without reaching any bilateral deals.

• Visible economic damage will likely be the most influential factor in Trump’s decision to reverse the course. However, for this disruption to be sufficiently apparent to Trump, it will take time, which means most relief is most likely to come in months at best, not days and weeks. There also may be a reluctance to acknowledge that the tariffs are creating this damage, given Trump’s belief that these duties will be economically beneficial in the long run and an intent to blame the Biden administration’s policies for near-term disruptions.
• Other potential influences include the financial markets’ continued slide, political pushback, and legal challenges, but these measures have shortcomings. First, while the markets still matter to the Trump administration, they carry less weight than during Trump’s first term given that he cannot run for reelection. Second, political pushback will only concern Trump if he loses enough credibility with congressional Republicans to no longer hold the narrow majorities in both chambers together. Lastly, although legal challenges are possible, the president has previously been afforded wide latitude under the International Emergency Economic Powers Act, suggesting that any court cases are not a sure defeat for the Trump administration.

The Next Rounds of Tariffs. As significant an announcement as Trump’s reciprocal tariffs were, they are unlikely to be the last tariffs he will impose during his presidency.

• The most obvious impetus for future tariffs is the escalation of the reciprocal tariffs as other countries retaliate. We have already begun to see that as it relates to China. Trump has previously not taken kindly to retaliation and will likely look to respond swiftly, pushing reciprocal rates closer to their “fair” value. To the extent possible, US trading partners will be better holding off on retaliation as it will delay any opportunities for relief and is the only way to ensure that the current rates remain the maximum they will face. Their own domestic political pressures, however, may make that difficult.
• Trump will likely also impose future tariffs on certain key sectors. These duties will be similar to those he has imposed on automobiles, steel, and aluminum. The next likely sectors to be targeted are copper and lumber, but future industries that could face duties include critical minerals, semiconductors, and pharmaceuticals. The Trump administration seems intent on using Sections 232 or 301 to pursue these tariffs, meaning an investigation must occur before the duties are imposed, providing some telegraphing prior to their imposition. A Biden-era 301 investigation launched in December remains ongoing and will likely provide the justification for future semiconductor-related tariffs. Active Section 232 investigations led by the Commerce Department include investigations into copper, timber, and lumber.

Fuzzy Reconciliation Math

Some Progress is Better Than No Progress at All. The Senate GOP broke an impasse over how to modify the House’s budget resolution late last week under pressure from the White House to demonstrate progress on passing tax cuts via reconciliation this month.

• Until this past week, the Senate GOP had been mired in a debate over how to adjust the spending and tax cut levels of the House-adopted budget resolution to better fit the upper chamber’s priorities. The House’s resolution included reconciliation instructions that would require a minimum of $1.5 to $2 trillion in mandatory spending cuts, a $4.5 trillion tax cut ceiling, and a $4 trillion debt ceiling hike. That didn’t square well with a Senate GOP that has a much more limited appetite for spending cuts and a preference for making tax cuts permanent, something the House budget resolution wouldn’t allow for.
• To rectify those problems, the Senate took the novel approach this past week of modifying the House’s budget resolution to include a separate set of spending and tax cut instructions to the Senate’s committees. The new budget resolution, which was adopted Saturday morning, preserves the spending cut and tax instructions to the House committees from the February budget resolution, but also includes new instructions to the Senate committees that require a minimum of only $4 billion in spending cuts, establishes a $1.5 trillion ceiling for new tax cuts, and allows up to a $5 trillion debt limit hike. The Senate GOP will attempt to achieve the House’s desired level of spending cuts, but if they can’t reach them, the House can simply vote to waive its own reconciliation instructions before it passes the final bill, allowing the GOP to fall back on the much lower Senate spending cut instructions and still comply with the arcane rules of reconciliation.
• Most importantly for the business community, the Senate’s $1.5 trillion tax cut ceiling instruction was made possible by the insertion of a “current policy baseline” into the budget resolution. Under that baseline, the new budget resolution assumes that the roughly $4 trillion cost of extending the expiring provisions of the Tax Cuts and Jobs Act (TCJA) will be scored as $0. The TCJA provisions can also be made permanent since the current policy baseline skirts a Senate rule that prevents a reconciliation bill from making permanent provisions that increase the deficit. The additional $1.5 trillion instruction to the Senate’s tax writing committee can now instead be used for new tax policy changes such as the priorities outlined by President Trump on the campaign trail.

Unanswered Questions Remain. While the Senate was able to take an important procedural step in advancing its budget resolution over the weekend, the decision to punt on the major debates over spending cuts and tax permanency suggests that the biggest road blocks to finalizing a reconciliation bill still lie ahead.

• Far from going away, the debate over spending cut levels appears poised to rear its head as soon as this week. Fiscal hawks in the House are frustrated by the Senate’s $4 billion spending cut floor. Given the House GOP’s thin majority, they have significant leverage in negotiations over the resolution and the final bill. In a statement over the weekend, House Budget Committee Chair Jodey Arrington (R-TX) said, “The Senate [budget resolution] was unserious and disappointing, creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts, less than one day’s worth of borrowing by the federal government.”
• Inextricably tied to the spending cut debate is the question of whether to use the current policy baseline or not. Most fiscal conservatives in both chambers don’t outright oppose the use of the current policy baseline, but they do oppose it if it isn’t paired with steep spending cuts. Arrington went on to note in his statement that the baseline “…sets a dangerous precedent by direct scoring tax policy without including enforceable offsets.” A handful of more moderate GOP senators are also skeptical of the baseline switch due to Senate GOP leadership’s failure to clear the move with the Senate parliamentarian before moving forward with it.
• Even once an agreement is reached on the broad contours of the reconciliation bill, the details around exactly which tax policy provisions to include and how to structure them will be contentious. Senate Finance Committee lawmakers are moving forward with the drafting of a key Trump campaign pledge, an increase of the cap on the State and Local Tax (SALT) deduction, but key House GOP lawmakers representing states affected by the policy are already opposing the Senate’s unreleased draft. Many more such debates are likely as the process goes forward.

The MAHA Agenda

MAGA to MAHA. Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. has expanded President Trump’s MAGA movement to include his Make America Healthy Again (MAHA) agenda.

• With MAHA, Kennedy focuses on what he calls the “chronic disease epidemic” and criticism of Pharma and the food industry, as well as vaccine skepticism. His policy priorities differ from traditional GOP health policy platforms.
• Kennedy is reorienting HHS around his MAHA vision. Last week, HHS announced major organizational changes, including cuts of 10,000 jobs, the centralization of functions, and the establishment of a new Administration for a Healthy America by combining agencies including those related to substance abuse and mental health as well as occupational health and safety. The announced reorganization included removing at least four of 27 National Institutes of Health directors and senior Food and Drug Administration (FDA) staff. This may clear the way for Kennedy and his team to replace them with personnel more supportive of MAHA. The Senate Health, Education, Labor, and Pensions Committee has asked Kennedy to testify about these changes this week. Bipartisan Energy and Commerce Committee staff are also planning to meet with Kennedy’s staff next week to discuss details of the restructuring plan.

Vaccines and Pharma. Secretary Kennedy’s MAHA agenda results in uncertainty for the pharmaceutical industry.

• The departure of Peter Marks, the FDA’s top vaccine regulator, amid a disagreement with Kennedy over vaccines, sent a signal of Kennedy’s intention to change how HHS does business. As director of the FDA’s Center for Biologics Evaluation and Research, Marks’ jurisdiction included new therapies from the biotech sector in addition to vaccines. This change in leadership disrupts stability for biopharma companies and the industry’s trade group has expressed
• As secretary, Kennedy’s concerns around vaccine safety may result in additional policies that weaken confidence in them, such as pushing for changes to vaccine guidance or the approval process, making like-minded appointments to advisory committees, or exposing manufacturers to greater liability by altering the Vaccine Injury Compensation Program. The withdrawal of Trump’s first pick to lead the Centers for Disease Control and Prevention indicates some limits to Republicans’ willingness to suport widespread vaccine skepticism.
• Kennedy has also called for reforms to the FDA’s user fee program, by which manufacturers pay the agency for the review of their product applications. Authorization of FDA user fees for prescription drugs, generics, biosimilars, and medical devices is set to expire on September 30th, 2027. Eliminating user fees without replacing the funds with taxpayer dollars would significantly erode the FDA’s resources and could result in a slower drug approval process.

Food and Nutrition. Kennedy has ultra-processed food in his crosshairs.

• The Department of Agriculture (USDA) has jurisdiction over many food issues, requiring Kennedy to collaborate with his USDA counterpart, Brooke Rollins, but there are some steps that Kennedy can take. He directed the FDA to consider changing its rules to bar manufacturers from self-determining new ingredients as “Generally Recognized as Safe (GRAS).” If this program is ended, they would be required to disclose the use of ingredients with safety data.
• Kennedy could also have an impact on nutrition through the federal government’s Dietary Guidelines for Americans, which is significant because it influences billions of dollars in federal nutrition spending. Federal law requires HHS and USDA to complete work on the guidelines by year end. Kennedy could influence the guidelines to reflect his views of nutrition, for example, promoting the replacement of seed oils with saturated fats like beef tallow.
• The Farm Bill expires on September 30th, presenting an opportunity for Kennedy and MAHA supporters to have a bigger impact on programs such as the Supplemental Nutritional Assistance Program (SNAP). Kennedy has called on governors to seek waivers to ban SNAP dollars from being spent on soda. SNAP falls under USDA purview but Rollins has praised the proposal.
• Kennedy’s success in reforming the US food system on the federal level largely depends on his ability to convince USDA to go along with it, but his MAHA movement could give momentum to efforts on the state level as well. Lawmakers in 20 states, red and blue alike, have introduced legislation to restrict the use of dyes and other additives in food, and West Virginia has led the way with a bill to ban seven artificial food dyes in school lunches this August and from being contained in food items sold in the state in 2028.

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