An Abrupt Shift by Joe Biden on Infrastructure; U.S.-China Relations Sink Again
Author: Greg Valliere
June 4, 2021
LET’S MAKE A DEAL: After his stunning reversal of core principles in an infrastructure proposal yesterday, President Biden clearly is grasping for a deal within the next week. Whether the GOP rank-and-file or the Democrats’ left can accept these changes is in doubt.
AFTER INSISTING ON A HIGHER CORPORATE TAX RATE, Biden apparently is willing to abandon this for a minimum business tax of 15 percent. After insisting on $2.25 trillion in infrastructure spending over eight years, Biden negotiated with himself, dropping the total to $1.7 trillion, then yesterday he indicated that $1 trillion might be enough.
WE GIVE CREDIT TO BIDEN FOR FLEXIBILITY, but left wing Democrats are howling and may rebel over a much more modest infrastructure bill than they had expected. And Republicans still consider any tax hike a “non-starter.”
IF BIDEN GETS A DEAL NEXT WEEK, he might be able to avoid the reconciliation path, which means he could use this tactic for a second bill, which would spend nearly $2 trillion on social programs, but that faces an uphill fight; one or two moderates could kill this measure. Further tax hikes, which Biden apparently would consider in a second spending bill, don’t appear to be imminent.
MORE NEGOTIATIONS ARE SCHEDULED FOR TODAY at the White House, with one very big issue — states, now flush with cash, may have their revenue windfall clawed back to pay for any deal. This is a red line for progressives, who will not agree to any major changes in the $1.9 trillion stimulus deal that passed two months ago.
MARKET IMPLICATIONS: Bond yields are still surprisingly low, in part because the prospect of enormous new spending has been reduced. Not only has the infrastructure price tag slipped, but states are rescinding generous unemployment benefits.
AND WITH CYBER ATTACKS, commodity shortages and an acute labor shortage dampening the economy, the threat of over-heated growth suddenly has subsided — at least until the 8:30 ET release of unemployment data.
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CHINESE OFFICIALS REACTED ANGRILY to the latest shot yesterday from the U.S. — the Biden Administration has increased bans on U.S. corporate relations with Chinese firms accused of using American technology to support Beijing’s military and surveillance.
THIS COMES AS THE TEMPERATURE rises in Washington on China’s lack of transparency on Covid. Both political parties are competing to sound the toughest against Beijing; the Biden Administration is looking like the Trump Administration on steroids in dealing with China.
YESTERDAY’S EXECUTIVE ORDER AGAINST CHINA toughens Donald Trump’s restrictions on U.S. companies sending technology to China. Trump banned 48 firms from dealing with Beijing, while Biden proposes to ban 59 firms. A retaliation from China is likely this summer.
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