Trump's important policy legislation, bond market, and budget rules are hitting a wall.

The road to enacting key policies raised by future U.S. President Trump is already hitting a wall even before taking office. While the Republican Party does control both the legislative and executive branches, achieving a decade-long scale of tax reform, immigration issues, and a comprehensive review of energy policy is complicated due to intricate budget rules, congressional dysfunction, and a nervous bond market. On the 8th, the risks became more evident as 20-year long-term bond yields surged to around 5%. Trying to pass a bill that consolidates all policies may accelerate market turmoil and jeopardize the Republican Party's plans.
Trump is expected to develop a specific strategy for enacting key policies in a meeting with Republican Party leaders this week. Party leadership is divided on whether to cram various policies into a single large bill or split key features into two separate bills. Biden also faced struggles over this legislative tactic, initially aiming for a large unified bill but ultimately being forced to pursue fragmented policy enactments.

The pressing issue is the limited time available. The Congress only has around 2 years left until the next election. The tax reduction measures enacted under the 1st Trump administration in 2017 are set to expire this year. Additionally, the market demands a clear resolution to the situation. Despite the Federal Reserve lowering interest rates, bond yields are rising, reflecting concerns that reckless promises may further undermine the soundness of the U.S. economy.

Speaker of the House Johnson faces a dangerously fragile Republican majority in the House, barely enough to address these challenges. Johnson intends to propose a bill encompassing border security strengthening, forced deportation of illegal immigrants, energy policy-related issues, and tax reforms. On the other hand, Senate Republicans prioritize immigration and energy matters first, hoping to address tax reforms later.
Any strategy involves risks. Some Republican lawmakers are demanding bills that do not create budget deficits, but they are refusing to consider tax increases aimed at increasing revenue. However, reducing the budget for social security programs has significant political drawbacks. Even the repeal of tax deductions in the renewable energy sector is facing opposition from within the party. Nevertheless, if all the proposed tax cuts are implemented without securing corresponding funding sources, Tax Foundation estimates that a deficit of $7.8 trillion will occur over the next ten years. If a unified bill packed with various provisions turns into a spending spree without funding sources, it could lead to a more intense 'rebellion' in the bond market. In that case, the idea of US bonds being safe and reliable assets supporting the world's financial system itself could be exposed to wide-ranging criticism.

The complexity of the situation arises from the strict budget rules (fiscal adjustment measures) that require Senate Republicans to follow, where only bills related to changes in expenditures, revenues, and budget deficits can be approved by a simple majority. For other regular bills, a greater number of votes (60 votes) are required for approval. This mechanism could lead to prolonged political disputes if one were to try to pass bills on immigration or energy policies first.
The first Trump administration was able to pass significant tax cuts, leaving behind a legacy. Whether they can achieve more significant results this time will likely depend on the strategic implementation of important policy legislation to be decided in the coming weeks.
Background News:
* Before the inauguration of the Trump administration on the 20th, President-elect Trump and the Republican congressional leadership are devising strategies for enacting important policies. Senator Soon is focusing on immigration issues first and proposing a two-step approach with subsequent tax cuts. Speaker Johnson is advocating for the submission of a single bill packed with as many important policies as possible. While Mr. Trump recognizes the merits of both strategies, he has not yet decided which one to choose.