Tax bill and tariffs cast uncertainty over US economy

The US Senate debated amendments to the "One Big, Beautiful Bill Act" on Monday, part of a tense showdown as a July 4 deadline approaches, amid a deep bipartisan rift and growing divisions within the Republican Party. A narrow House vote weeks earlier pushed President Donald Trump's flagship second-term legislation into a sharply divided Senate.

The expansive bill, blending extensions of the 2017 tax cuts with steep slashes to social programs and fresh funds for a border wall, faces a rocky road ahead. Yet, the legislative struggle is only part of the picture. Hanging over every debate is Trump's separate push for a 10 percent universal tariff announced in April, due to take effect on July 9, delivering a double blow of economic uncertainty that has left allies, industries and Wall Street concerned.

The future of the "One Big, Beautiful Bill Act" in the Senate hangs by a thread. It barely passed a crucial procedural vote on June 28 with a 51-49 tally, thanks to Vice-President JD Vance's tie-breaking vote. Majority Leader John Thune is working to steer the package forward, with backers like Ways and Means Chairman Jason Smith promoting its pledge of "$1,300 a year for a family of four".

But that promise is hitting stiff resistance. Democratic lawmakers, led by Chuck Schumer, have slammed the bill as "a blow to working families", citing Congressional Budget Office estimates that its $700 billion Medicaid cuts could jeopardize coverage for millions.

"This isn't progress; it's harsh," Senator Amy Klobuchar told MSNBC on June 28, highlighting the strain on already struggling rural hospitals.

The pushback is not limited to the Democratic side. The bill's projected $3.9 trillion addition to the national debt has fiscal conservatives like Senator Rand Paul strongly opposed. In a June 25 X post, Paul called the legislation "a budget disaster". His critique highlights the bill's core conflict: its tax relief relies on cuts and borrowing that even some Republicans find tough to accept. The CBO's June 12 report warns that the debt-to-GDP ratio could hit 125 percent by 2034, a concern echoed by economists who say the bill favors the wealthy while hurting low-income families.

Most Republican lawmakers, on the other hand, support the bill.

"The One Big Beautiful Bill Act represents the culmination of each instructed committee's plan to eliminate waste, fraud and abuse in Washington, and make vital investments in our communities," said Representative Tim Walberg.

Senator Mike Crapo said, "This bill prevents an over-$4 trillion tax hike and makes the successful 2017 Trump tax cuts permanent, enabling families and businesses to save and plan for the future".

As the Senate debated on Monday, billionaire Elon Musk issued a stark warning on his social media platform X, vowing to support primary challenges against any Republican voting for what he called an "insane spending bill", saying they should "hang their head in shame!" He later threatened that if the bill passes, "the America Party will be formed the next day" as an alternative to the "Democrat-Republican uniparty".

Adding to the unease is the universal tariff, set to start on July 9. Economists have nearly unanimously condemned the policy, viewing it as a crude tool that will hit American households hardest.

"Tariffs are highly likely to generate at least a temporary rise in inflation," Federal Reserve Chairman Jerome Powell said at the Economic Club of Chicago on April 16. He repeated his warning on June 25. "There will be some inflation from tariffs coming," Powell said at a hearing hosted by the Senate Banking Committee. "Not yet, but over the course of the coming months."

His view regarding Trump's tariffs' negative impacts is shared by Kristalina Georgieva, managing director of the International Monetary Fund.

"The tariffs risk triggering a global trade war, with retaliatory measures already driving up costs for US consumers," Georgieva said in a statement reported by Reuters on June 13.

"Trump's tariffs could push consumer prices up by 1.5 percent in the short run, hitting low-income households hardest with an average loss of $1,100 annually," according to a report released on June 16 by The Budget Lab at Yale.

The US economy is already feeling the pinch. It took a bigger hit than expected in the first quarter, shrinking 0.5 percent due to a rush of pre-tariff imports. The Commerce Department's final report on June 26 revised down its initial estimation of a 0.3 percent drop from April.

This twin challenge has industries and global partners reeling. The American Petroleum Institute cheered the bill's deregulation in its June 5 statement, but trade groups like the National Association of Manufacturers, while backing the tax cuts, cautioned that tariffs could "cancel out those benefits with rising costs" in its statement released on June 20. Airlines for America warned that tariff-driven fuel price surges spell "a brewing crisis". More than one US ally has reacted even more sharply. Australia's trade minister labeled the 10 percent tariff "a direct affront", while Canada signaled possible retaliation, according to Reuters.

yifanxu@chinadailyusa.com