Complications

Good morning. Stocks look like they’ll do better today. Despite public statements to the contrary, there are signs of a pause in the tariffs. So many countries claim they want to negotiate that the President has put Scott Bessent, not Peter Navarro, in charge of the negotiations. Bessent has pushed Trump to clarify his message that he wants negotiations, not permanent tariffs, which are Peter Navarro's preferred position.

You must know that Bessent is privately believed to oppose the tariffs. Both Bessent and Kevin Hassett have previously opposed tariffs, and Bessent, widely trusted on Wall Street, is believed to be attempting to use his publicly supportive statements to help mitigate the potential damage behind the scenes. Having Bessent running point on trade negotiations provides some calm to the markets.

What is not providing calm is China's claim that it will fight to the end. That will impact us, but Trump is right that we have more leverage in this fight than China.

It would be smart to more forcefully target China and use the negotiations to scale back tariffs with those who might ally against it. China really is the problem, not our long-time allies.

The other issue that must now be considered, through all this turmoil, is the House and Senate tax negotiations.

The Senate, frankly, does not want to cut spending. One argument for tariffs is that they will force down treasury yields and allow Bessent to deal with the national debt. Likewise, many Trump supporters believe we have accumulated $35 trillion in national debt by being taken advantage of.

If the Senate will not rescind spending found to be wasteful or fraudulent by Elon Musk and the Senate will not cut spending, we are headed off the fiscal cliff sooner rather than later, particularly if a recession does come.

Privately, House and Senate leaders would like to reach a tax deal soon to reassure the market and to get ahead of any revenue shortfalls a recession might provoke.

But conservatives in the House need to kill any deal that does not take spending cuts seriously. The status quo is better than ever-increasing debt volumes. We are headed towards catastrophic levels. If it can be accomplished with either a corporate tax cut or a capital gains tax cut, that will be economically stimulative and offset the tariffs.

The House and Senate must be willing to lose to cut real spending. Frankly, the House of Representatives is probably lost anyway at this point, so they might as well fight to save the nation since they cannot save themselves.