Cozen Currents: Trump's Personal Touch on Tariffs

"As the saying goes, ‘personnel is policy.’ But when it comes to tariff policy, the only personnel that truly matters is President Trump.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump relies on his worldview and instincts when it comes to tariff policy, creating a regime where winners and losers will be heavily driven by his own perceptions and preferences.
• GOP lawmakers recently adopted a framework for the party’s domestic policy agenda that would allow the party to go bigger than expected on tax reform, outlining a plan to permanently extend the expiring individual tax rates from the 2017 Tax Cuts and Jobs Act while also implementing many of the tax policy changes President Trump championed on the campaign trail.
• Federal highway spending and the 2021 Infrastructure Investment and Jobs Act both expire next year. What follows in their place will determine the future of infrastructure in the US.

Personnel is Policy on Tariffs

Trump’s Tariff Personnel. President Trump’s advisors are more united on whether to use tariffs as a policy tool than during his first term, but splits still remain over how aggressively to do so.

• The most hawkish member of Trump’s staff is Peter Navarro, who plays a critical role as a public expression of Trump’s own inherent instincts. Commerce Secretary Howard Lutnick has also shown himself to be a more hawkish administration member. However, Lutnick’s beliefs are less ideologically driven than Navarro's.
• The other camp includes Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, who have advocated for a more moderate approach to imposing tariffs. Bessent has become the most public face of this group in recent days and is set to now be the Trump administration’s lead negotiator in reaching trade deals with countries amid the 90-day pause.
• Other, less public figures shaping the tariff discussion in the Trump administration include US Trade Representative Jamieson Greer and Council of Economic Advisors Chair Stephen Miran. Notably, Greer has carved a lane for himself by trying to bring more order to the tariff policy and ensuring that the president’s plan is on solid legal ground.

Trump’s Conviction on Tariffs. Trump's investment in the specifics differentiates tariff policy from most other governing issues. The result is that he relies more on his own beliefs and instincts and less on the opinions of those around him in setting the policy.

• When Trump makes policy decisions, the last person in the room can often carry significant weight. While not unimportant, it matters less with tariffs than on other issues, given Trump’s increased willingness to trust his own beliefs and instincts on trade policy decisions. Instead, Trump has made himself the most important factor regarding tariffs.
• Trump’s self-reliance on tariffs stems from his long-standing worldview of the US economy being driven by domestic manufacturing. His strong conviction derives partly from his greater comfort in returning to Washington for a second stint. He is more willing to push the boundaries and rely less on advisors this time around, as he has a familiarity with the levers he has at his disposal that did not exist during his first term.

Trump’s Winners and Losers. With Trump as the most significant factor in shaping tariff policy, it will mean that his perceptions of industries and countries will determine who is likely to receive relief and how fast and meaningful that relief may be.

• Reaching an agreement with Bessent will be a critical first step for those countries seeking relief. However, Trump’s position as the ultimate decision maker means he will have the final say and be the most crucial person to befriend and curry favor with.
• This approach means that there will be winners and losers based on Trump’s perceptions and preferences, as relief is unlikely to be applied evenly. Trump is open to talks, but the willingness to deal is unequal across trading partners. Additionally, there will likely not be a standard deal, meaning that winning relief will not look the same for all countries, though the 10 percent universal tariff will prove to be a floor in most cases.

What’s in Play in Tax Reform

The Tax Cuts and Jobs Act. The core of the GOP’s tax reform agenda is an extension of the expiring individual provisions of President Trump’s signature tax policy accomplishment from his first term, the Tax Cuts and Jobs Act (TCJA).

• The 2017 TCJA made changes to both the individual and corporate side of the tax code, but only the lower individual rates were set to expire at the end of this year as a cost saving measure. Now, to prevent a tax hike on roughly 62 percent of Americans, the GOP plans to extend the lower individual rates of the TCJA as part of this year’s reconciliation bill. But this time around a novel accounting maneuver may allow the party to skirt the Senate’s reconciliation rules and make all or most of the lower individual rates permanent tax law.
• There are dozens of TCJA changes that may be eligible to be made permanent in this year’s bill, but the most prominent are the lower marginal tax rates for individuals and joint filers. Permanent extension of the TCJA’s marginal rates would keep each tax bracket’s rate at 10, 12, 22, 24, 32, 35, and 37 percent instead of increasing to the 10, 15, 25, 28, 33, 35, and 39.6 percent pre-TCJA rates, respectively. Other prominent TCJA changes that could be made permanent are the doubled standard deduction, the 20 percent deduction for qualified business income, and the doubled estate and gift tax exemption thresholds.

The GOP’s New Tax Policy Ideas. GOP lawmakers plan to include up to $1.5 trillion in non-TCJA changes to the tax code in their tax bill this year, many of which will come from President Trump’s campaign speeches and announcements.

• On the campaign trail, Trump pledged to eliminate the federal taxation of tipped wages, overtime wages, and Social Security benefits, while also promising to increase the cap on the State and Local Tax (SALT) deduction and lower the corporate rate for domestic manufacturers, among other things. Bloomberg reports that the Senate Finance Committee is already at work trying to turn those promises into a reality, with the goal of including at least two of the “no tax on tips/overtime/Social Security benefits” policies in the final bill. Blue-state GOP lawmakers in the House, meanwhile, are promising to vote against any tax bill that doesn’t hike the SALT cap, suggesting that some sort of increase to the cap is all but guaranteed.
• Beyond Trump’s ideas, GOP lawmakers are eyeing a number of their own changes to the tax code for inclusion in the tax bill as well. Senate Finance Committee Chair Mike Crapo (R-ID) said last month that his colleagues had already submitted over 200 ideas to him. Those include expanding the TCJA’s opportunity zone benefits, abolishing the estate tax, and restoring a trio of business deductions to boost research and development and capital investments. Politico reports that Senate Finance Committee members are also considering further expanding the Child Tax Credit above and beyond the TCJA’s levels.

Infrastructure Week Returns

End of the Road. Come September of next year, both the 2021 Infrastructure Investment and Jobs Act (IIJA) and federal infrastructure spending will lapse.

• The IIJA was attached to reauthorization for the Highway Trust Fund (HTF), whose authorization typically lasts five years. The IIJA represented an extra $118 billion for the HTF with another $68 billion for highways and public transportation on top. Failure to positively intervene will mean a 30 percent shortfall in HTF spending worth $150 billion over five years.
• Congressional Republicans are split on whether to roughly keep pace with IIJA levels or scale it back, reflecting an internal schism between fiscal hawks in the House and more moderate Republicans in the Senate. House Transportation and Infrastructure Committee Chair Sam Graves (R-MO) has indicated he’s aiming for a rollback; Senate Environment and Public Works Committee Chair Shelley Moore Capito (R-WV) wants some of this expanded spending to be retained. The White House has so far withheld its opinion on the topic, with relevant nominees dodging the question during confirmation hearings. As always, we can expect President Trump’s position to have heavy sway among GOP lawmakers.
• Politicization of some provisions of the IIJA means that despite passage on a bipartisan basis four years ago, some policies can no longer bank on GOP support. The biggest example of this switch is federal spending to establish a network of electric vehicle charging stations around the country. Going forward, Republicans are on the same page on wanting funding to go towards “traditional” projects:” roads, bridges, etc. Programs contributing to bike infrastructure and climate change have been suspended under the new administration. The priority is shifting towards car-centric and rural spending at the expense of public transit and marginalized communities. Formula spending and flexibility for states is also being preferred over discretionary grants.

Constructing an Agenda. Infrastructure is at the core of many of Trump’s ambitious plays to expand executive power.

• The government-wide pause on all government funding was the warning shot in a coming battle over budget impoundment. In short, Trump asserts that he doesn’t have to spend any funds he doesn’t want to, even if such spending is laid out in law. Even if many of these actions are paused or overturned in the courts, the delay and uncertainty associated with what Republicans characterize as “Green New Deal” spending represents a partial win for the administration.
• Meanwhile, Trump has incredible authority in awarding the remaining $87.2 billion in competitive grants remaining under the IIJA. The White House has called for attaching more strings to the money it hands out; more than 3,200 projects have been awarded but do not have a signed grant agreement in place. One memo from the Department of Transportation (DOT) instructs the organization, “to the maximum extent permitted by law,” to prioritize communities with high birth rates, that do not impose vaccine or mask mandates, and that cooperate with federal immigration officials.
• Trump is also leaving his mark on the civil service. Over a thousand employees at the DOT and Federal Aviation Administration have either been let go or accepted a voluntary resignation deal. At a time when everyone in Washington wants to hire more air traffic controllers, it was unclear whether an administration-wide hiring freeze shortly after entering office applied. The administration is currently locked in a legal battle over their effort to remove collective bargaining rights for many government workers; one proposal in Project 2025 would reinterpret one law to permit transit agencies to decrease compensation for employees.