The Year Ahead: Tough tests loom for Trump trade agenda

The economy has remained strong and steady under President TrumpDonald John TrumpNew EPA rule would expand Trump officials' powers to reject FOIA requests Democratic senator introduces bill to ban gun silencers Democrats: Ex-Commerce aide said Ross asked him to examine adding census citizenship question MORE, with near-record low unemployment, accelerating wage growth and reliable consumer spending. But economists are increasingly wary of an impending slowdown or recession.

In the year ahead, Trump and his administration face a series of deadlines, decisions and storm clouds that could mar their progress. Here are four crucial financial issues to keep an eye on in 2019.


Trade tensions

Expect President Trump to keep up pressure on Congress to ratify the new and updated North American Free Trade Agreement also known as the U.S.-Mexico-Canada Agreement (USMCA) next year.

Trump recently said he would withdraw from the 25-year-old deal in an effort to push the House and Senate to act faster on passing the new pact.

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That idea landed like a lead balloon with congressional Republicans on Capitol Hill who think it would be a bad move for a number of reasons.

Trump has touted the benefits of the new agreement, which trade experts argue is little changed from the pact currently in place.

“Our new deal with Mexico (and Canada), the USMCA, is so much better than the old, very costly & anti-USA NAFTA deal, that just by the money we save, MEXICO IS PAYING FOR THE WALL!” Trump tweeted recently.

The USMCA is only one of Trump’s concerns on the trade front.

Businesses and lawmakers have maintained a heavy lobbying campaign to end steel and aluminum tariffs, especially on Canada and Mexico for completing the new trade deal.

But the president hasn’t budged although U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerChinese, US negotiators fine-tuning details of trade agreement: report The Trump economy keeps roaring ahead Trump says no discussion of extending deadline in Chinese trade talks MORE has said there are discussions on the issue.

Trump also has thrown fuel on the fire of trade relations with China.

The administration has slapped China tariffs of $250 billion on Chinese imports, using the increase in duties to pressure Beijing to stop unfair trade practices such as intellectual property theft and forced technology transfer.

But a recent meeting between Trump and Chinese President Xi Jinping led to at least a short-term 90-day cease fire on any more tariffs.

The U.S. and China are trying to work out a trade deal that Trump argues would rebalance trade. He recently tweeted that the talks are going well and he is optimistic that the world’s two largest economies can hammer out an agreement.

The administration said earlier this week that the 90-day deadline could be extended. Any deal with China will likely be highly complex.

"If there's good, solid movement and good action, he might, he might be willing to extend," said Trump economic advisor Larry Kudlow on CNBC.

Those trade fights will also play out as the economy sees troubling dark clouds on the horizon. Markets have seen a volatile year and economists see signs of a potential slowdown ahead.

 

Trump's tax returns

Democrats will be able to take new steps in their quest to obtain President Trump’s tax returns once they take control of the House in January.

The federal tax code allows the chairmen of Congress’s tax committees to request tax returns from the Treasury Department and review them in a closed session. After examining the returns privately, a committee could vote to issue a report that would make some or all of the tax-return information public.

Next year, Rep. Richard NealRichard Edmund NealTrump's tax returns — DOJ trying to put off the inevitable? Democrats talk up tax credits to counter Trump law House panel approves bills on tax extenders, expanding tax credits MORE (D-Mass.) will become the chairman of the House Ways and Means Committee, and he has indicated that he will request the president’s returns.

But the administration may try to slow-walk or refuse the request, which could result in a court fight.

Neal also plans to hold hearings on Trump’s 2017 tax-cut law. Democrats, who all voted against the measure, have bemoaned the fact that there weren’t hearings on the bill before it was enacted. Still, Democrats are unlikely to be able to undo substantial parts of the tax law next year, because Republicans still control the Senate and White House.

In the Senate, Sen. Chuck GrassleyCharles (Chuck) Ernest GrassleyGrassley raises concerns about objectivity of report critical of GOP tax law's effects Overnight Health Care: Key Trump drug pricing proposal takes step forward | Missouri Planned Parenthood clinic loses bid for license | 2020 Democrats to take part in Saturday forum on abortion rights Key Trump proposal to lower drug prices takes step forward MORE (R-Iowa) will become the chairman of the Finance Committee.

Grassley said in a recent Senate floor speech that his priorities will include working to permanently extend temporary provisions in the tax law, encourage more retirement savings, modernize the IRS and strengthen taxpayer rights.

 

Tougher oversight for Wall Street

The ascension of Rep. Maxine WatersMaxine Moore WatersHillicon Valley: Senate bill would force companies to disclose value of user data | Waters to hold hearing on Facebook cryptocurrency | GOP divided on election security bills | US tracking Russian, Iranian social media campaigns House panel to hold hearing on Facebook cryptocurrency project On The Money: S&P hits record as stocks rally on Fed cut hopes | Facebook's new cryptocurrency raises red flags for critics | Internal IRS watchdog rips agency's taxpayer service | Apple seeks tariff relief MORE (D-Calif.) as chairwoman of a crucial House committee will transform how Congress and the federal government regulates the financial sector for the next two years.

As chairwoman of the House Financial Services Committee, Waters will lead the new House Democratic majority’s oversight of U.S. banks, mortgage lenders, credit card companies and insurers.

Waters has little chance of reversing rollbacks to the Dodd-Frank Wall Street reform Act enacted by President Trump next year or Republican efforts to reign in the Consumer Financial Protection Bureau (CFPB).

But Waters can convene hearings, issue subpoenas and pressure Trump-appointed financial regulators to make their regulatory rollbacks more amenable to Democratic concerns.

Waters’s rise also means she’ll play a critical role in shaping bipartisan efforts to repair the debt-riddled federal flood insurance program, re-staff the Export-Import Bank and overhaul the federal housing finance system.

 

A new round of spending fights

Depending on what happens in the next few weeks, 2019 could kick off with a government shutdown.

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Congressional Democrats and Trump have dug in their heels over the president's demand for border wall funding, which could lead to a late-year shutdown if they fail to reach a deal by December 21. Trump has demanded $5 billion, but Democrats want to maintain last year’s funding levels for Homeland Security, which would provide $1.3 billion in funds to fencing.

The new year could feasibly roll in with a partial government shutdown if the sides fail to reach a compromise, but there are already discussions underway for short-term stopgaps to push the fight into January.

Once the 2019 spending fight ends, attention will immediately turn toward fiscal 2020, where a bevy of controversies await Congress. First, Democrats and Republicans will have to agree to new spending caps, without which there would be sharp spending cuts under the terms of the Budget Control Act. Congress is expected to give moderate boosts to both defense and non-defense spending.

In the House, incoming Appropriations Chairwoman Nita LoweyNita Sue LoweyCongress unlikely to reach deal on Trump border bill before break House Dems at odds with Senate in .5 billion border bill House Democrats close to finalizing border aid bill MORE (D-N.Y.) has said that she wants to follow the example the Senate set this year and exclude so-called poison pills--controversial policy riders--from the appropriations process. Once topline spending numbers are agreed upon, that could ease the way for a fairly swift appropriations process.

It would be a notable accomplishment if Lowey and incoming ranking member Rep. Kay GrangerNorvell (Kay) Kay GrangerDemocrats take aim at Trump policies by passing T spending package Congressional leaders, White House officials to meet Wednesday on spending Democrats set stage for next shutdown fight with wall-free spending bill MORE (D-Texas), the first team of women to lead the committee, managed to pass all 12 spending bills on time, a rare feat in Washington.

Lowey has also said that her priorities would include potential bipartisan work on an infrastructure plan and big boosts to education.

But Congress will face also face another challenge to avoid hitting the debt ceiling. It's the point at which Treasury is no longer able to borrow on the markets, a situation which would lead to a catastrophic sovereign debt default.

Technically, the debt ceiling will be reinstated on March 2, but in recent years the Treasury Department has used so-called “extraordinary measures” to put off a default for months.

Budget experts estimate that the real deadline for dealing with the debt ceiling would come at some point in mid-summer.

House Republicans in recent years have tried to use the debt ceiling as leverage on their priorities, often related to cutting spending. But that will change with Dems controlling the House.

The debt itself will continue to be an important issue, whether or not Congress chooses to address it. According to the Congressional Budget Office, the nation’s debt is on track to reach $29 trillion by 2028, about 96 percent of the size of the entire U.S. economy. Congress would have to pull back spending, raise taxes, or both to correct that path.