By Andy Bruce

(Reuters) – A clear majority of British businesses look set to cut the size of pay awards for staff in response to coming tax hikes and they remain pessimistic about the outlook for the economy, two surveys showed on Monday.

Data provider Incomes Data Research said 69% of employers it canvassed were extremely or moderately likely to reduce pay awards to offset an increase in payroll taxes announced by finance minister Rachel Reeves in her first budget last October.

More than half of those respondents said they were “extremely likely” to slow their pay increases.

The survey sheds light on a key uncertainty facing the Bank of England ahead of its Feb. 6 interest rate announcement.

The BoE is trying to gauge whether employers will react to the tax hike by cutting jobs, wages or profits, or by raising prices.

Most investors and economists think the central bank is likely to cut interest rates by a quarter point next week but the picture for the rest of the year is less clear.

A separate survey published on Monday by the Confederation of British Industry showed companies were only slightly less pessimistic about the coming three months than they were in December.

The CBI’s growth indicator – which measures expectations among businesses across manufacturing and services, including retail – barely rose in January to -22 from a more than two-year low of -24 in December.

“After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity,” said Alpesh Paleja, interim chief economist at the CBI.

“Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers.”

Reeves has said her tax increases are a one-off to put the public finances on a stable footing while raising funds for services and investment. She is expected to make a speech this week on her plans to speed up Britain’s slow economy.

One third of employers in the IDR survey said they were likely to make redundancies while 45% said they would absorb the impact of tax increases through reduced profits or other means.

IDR said 37% of employers planned to award pay rises of between 2.0% and 2.99% this year, while 43% predicted pay rises of between 3.0% and 3.99%. Only 14% expected 4% or more, offering some relief to the BoE which is worried about lingering inflation pressures in the economy.

IDR surveyed 168 employers covering 1.2 million workers in November and December. The CBI report covered 990 companies who were surveyed between Dec. 19 and Jan. 14.

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar firmed on Monday as traders pondered the ramifications of U.S. President Donald Trump’s tariff plans at the start of a week where the Federal Reserve is widely expected to hold interest rates steady.

The dollar clocked its weakest week since November 2023 last week on ebbing fears of tariffs from the Trump administration, but those worries resurfaced after he said he will impose sweeping measures on Colombia.

The retaliatory moves, including tariffs and sanctions, comes after the South American country turned away two U.S. military aircraft with migrants being deported as part of the new U.S. administration’s immigration crackdown.

That led to the Mexican peso, a barometer of tariff worries, sliding 0.8% to 20.426 per dollar in early trade. The Canadian dollar was a bit weaker at $1.43715.

The euro was 0.14% lower at $1.0474 ahead of the European Central Bank policy meeting this week where the central bank is expected to lower borrowing costs. Sterling last fetched $1.24615.

That left the dollar index, which measures the U.S. currency against six units, at 107.6, still close to the one-month low it touched last week.

Investor focus this week will be on the central banks and how policymakers are likely to react after Trump said he wants the Federal Reserve to cut interest rates.

The Fed is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, though investors will be watching for any clues that a rate cut could come in March if inflation continues to ease closer to the U.S. central bank’s 2% annual target.

Data on Friday showed that U.S. business activity slowed to a ninth-month low in January amid rising price pressures, while separately U.S. existing home sales increased to a 10-month high in December.

“Optimism has surged about Trump’s growth-friendly America First agenda, inflationary pressures have intensified to a four-month high, and businesses are taking on employees at the quickest pace since 2022,” said Kyle Chapman, FX markets analyst at Ballinger Group.

“That picture is suggestive of a reheating labour market, and strongly supportive of an extended pause at the Fed.”

In other currencies, the Australian and New Zealand dollars were slightly lower but remained closer to their one-month highs touched last week. The Australian markets are closed for the day.

The Japanese yen strengthened nearly 0.4% to 155.41 per dollar in early trading after the Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis and revised up its inflation forecasts.

BOJ Governor Kazuo Ueda said the central bank will keep raising interest rates as wage and price increases broaden but offered few clues on the timing and pace of future rate hikes.

Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said the renewed attention back on the Japan story could provide a catalyst for the yen to appreciate in the weeks ahead.

“The Japanese currency remains extremely undervalued on most valuation models and, as interest rate differentials narrow, we think that this will help the yen perform better in 2025.”

WASHINGTON – President Donald Trump on Sunday issued an executive order establishing a review council for the Federal Emergency Management Agency, just days after he floated shuttering the agency whose resources are strained following multiple weather-related disasters and which is burdened by past failures in handling massive storms.

Last Friday, the Republican president floated the idea of shuttering FEMA during a trip to disaster areas in North Carolina and California, hit by a hurricane and massive wildfires.

    WHAT IS FEMA?    The federal agency’s mission is to help people before, during and after disasters, including hurricanes, tornadoes, earthquakes and floods. FEMA brings in emergency personnel, supplies and equipment to stricken areas.

Its reputation was battered by its poor handling of Hurricane Katrina in 2005, and the agency has struggled to recover. Trump criticized FEMA on the campaign trail and since taking office on Monday.     FEMA has a workforce of 20,000 people that can swell to more than 50,000 active members during major disasters, according to its website. It has 10 regional offices and the capacity to coordinate resources from across the federal government.    Officially created in 1979, it became part of the Department of Homeland Security in 2004.

TRUMP CRITICISM

Trump has accused FEMA of bungling emergency relief efforts in North Carolina and said he preferred that states be given federal money to handle disasters themselves. During a visit Friday, he said the agency should be fundamentally reformed or even scrapped.

“FEMA has turned out to be a disaster,” he said during a tour of a North Carolina neighborhood destroyed by September’s Hurricane Helene. “I think we recommend that FEMA go away.”

Trump also criticized California’s response to recent wildfires that devastated Los Angeles, but he pledged during a visit to work with California Governor Gavin Newsom and offered help to L.A. Mayor Karen Bass. 

     FEMA STAFFING    FEMA says it is currently supporting 108 major disasters and 10 emergency declarations. According to its daily operations briefing, 17% of its disaster-response workforce is available. 

After Trump said he wanted to overhaul or scrap FEMA, the agency’s acting head Cam Hamilton wrote to staff and assured them that “FEMA is a critical agency which performs an essential mission in support of our national security.” Hamilton is a former Navy SEAL Trump appointed to temporarily lead the agency after the Republican president took office last week.

         FEMA FUNDING

Funding for the agency has soared in recent years as extreme weather events boosted demand for its services. The agency received $29 billion from Congress in December to fund ongoing relief efforts.

A FEMA spokesperson told Reuters last week the agency has not received additional funding to reimburse states for ongoing recovery efforts after Hurricane Helene devastated North Carolina and the U.S. Southeast in late September.

There has been no presidential action or congressional appropriation under the current Trump administration to provide additional funds to FEMA for hurricane recovery efforts, and no credible reports of such funding.

         DISINFORMATION CAMPAIGN    While responding to real-life disasters, FEMA has also battled a slew of false rumors about how its funds have been used. Before his re-election, Trump and his Republican allies accused former President Joe Biden and Vice President Kamala Harris, the Democratic candidate for president, of using federal emergency money to help people who were in the country illegally. U.S. Representative Marjorie Taylor Greene went as far as to say government officials control the weather.

FEMA has been the target of so many falsehoods it has set up a rumor response page on its website to tamp them down.     One entry addresses the accusation that FEMA diverted funs to the border.

“This is false. No money is being diverted from disaster-response needs. FEMA’s disaster-response efforts and individual assistance is funded through the Disaster Relief Fund, which is a dedicated fund for disaster efforts. Disaster Relief Fund money has not been diverted to other, non-disaster related efforts.”         FEMA FAILURES    The agency has been criticized for emergency responses to hurricanes that fell short, including Hurricane Maria in Puerto Rico in 2017. Residents accused then-President Trump of being slow to dispatch aid after Maria and clumsy in his public remarks once it was clear the U.S. territory had been devastated.         In 2005, Hurricane Katrina battered New Orleans and flooded parts of the city as residents crowded into ill-prepared shelters.     Katrina devastated the Gulf of Mexico coast and caused more than 1,800 deaths. It also shattered the reputation of FEMA, which was sharply criticized for its response.

BEIJING (Reuters) – Profits at China’s industrial firms fell 3.3% in 2024 from the previous year, official data showed on Monday.

The fall extended a 4.7% drop in the January-November period, and compares with a 2.3% decline for the entire 2023, according to National Bureau of Statistics data.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.74 million) from their main operations.

($1 = 7.3125 Chinese yuan)

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets. 

A big week for world markets kicks off in Asia on Monday with investors still navigating the blizzard of headlines around U.S. President Donald Trump’s likely economic agenda, while trying to gauge whether the “U.S. exceptionalism” narrative may be losing its luster.

The dollar fell 1.8% last week, its worst week since November 2023. If the greenback is consolidating, it shouldn’t really be a surprise – it hit a two-year high earlier this month and hedge fund net ‘long’ position was the biggest in nine years.

The dollar and U.S. stocks have been closely correlated, lifted by the huge wave of global capital inflows as investors bet heavily on the American AI, tech, growth and returns boom.

But if the dollar’s slide is a sign that the “U.S. exceptionalism” flame is starting to flicker, is Wall Street primed for a cooling off period too?

The S&P 500 hit a new high last week and the Nasdaq came close. Index levels are historically high, valuations are stretched, and big event risk looms this week in the shape of the Fed’s policy meeting and ‘Big Tech’ earnings.

Scrutiny on U.S. tech is intensifying as ripples from a Chinese AI startup called DeepSeek spread. DeepSeek recently launched a free, open-source AI model it claims is at least the equal of more established models like ChatGPT on many levels, but built at a fraction of the cost.

It’s early days but if this shines a critical light on the huge sums being spent on AI by U.S. tech firms, Wall Street could wobble.

The Asian calendar on Monday is dominated by China’s ‘official’ manufacturing and service sector purchasing managers index reports for January.

A Reuters poll suggests the manufacturing PMI will be unchanged from the previous month at 50.1. On the one hand, that would represent the fourth straight month of expansion in the sector. It would also indicate almost no growth at all for the second month in a row.

Data on Friday showed Chinese state-owned firms’ profits last year virtually evaporated, rising only 0.4% on the previous year. Wider industrial sector profits figures are due this week, perhaps as early as Monday, and are expected to confirm that 2024 was the worst year in decades.

Investors will give their second day verdict on Friday’s Bank of Japan’s rate hike. The initial take seemed to be that it was a ‘hawkish hike’, but Japanese money markets are still pricing in only another 25 basis points of tightening this year, unchanged from pre-Friday levels. This suggests BOJ guidance was actually pretty neutral, and Japanese stock futures are pointing to a strong rise on Monday.

Meanwhile, South Korean markets will be sensitive to the news that prosecutors on Sunday indicted impeached President Yoon Suk Yeol on charges of leading an insurrection with his short-lived imposition of martial law on Dec. 3.

Here are key developments that could provide more direction to markets on Friday:

– China ‘official’ PMIs (January)

– Japan leading indicator (November)

– Germany Ifo index (January)

Investing.com — U.S. President Donald Trump announced on Sunday that he is initiating a series of actions against Colombia after the Colombian government rejected two U.S. military flights carrying migrants.

Trump ordered his Administration to introduce “emergency 25% tariffs on all goods coming into the United States,” which will be raised to 50%” in one week.

According to Trump, these measures are necessary as the decision by Colombian President Gustavo Petro has put U.S. national security at risk. The retaliatory actions include tariffs, visa restrictions, and other measures.

Trump communicated his decision on his social media platform, Truth Social, stating that these actions were just the start.

“These measures are just the beginning. We will not allow the Colombian Government to violate its legal obligations with regard to the acceptance and return of the Criminals they forced into the United States!” Trump wrote on Truth Social.

He expressed his disapproval of the Colombian government’s breach of legal obligations concerning the acceptance and return of migrants they allegedly forced into the U.S.

Earlier on Sunday, President Petro stated that his government would not accept flights carrying deported migrants from the U.S. until the Trump administration establishes a protocol that ensures their dignified treatment.

Petro’s announcement was made in two posts, one of which featured a news video showing migrants reportedly deported to Brazil walking on a tarmac with restraints on their hands and feet.

By Jiaxing Li and Ankur Banerjee

HONG KONG/SINGAPORE (Reuters) -New shades of capitalism are emerging in China’s tuckered out stock market as companies, at Beijing’s behest, buy back their shares and pay record dividends to investors lying in wait for a so-far evasive rebound.

Investors say the record spree of share buybacks and dividend payouts mark a cultural shift in the market, turning the spotlight on shareholder returns akin to the ongoing corporate governance makeover in Japan.

The dividend yield on Chinese stocks has risen to around 3%, the highest since 2016, rewarding investors who have bravely stayed invested in a market that has been limp for years and faces more stress after Donald Trump’s return as U.S. president.

“China’s regulators and policymakers are trying to engineer this culture of shareholder return,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas (OTC:BNPQY).

“If that can be successfully engineered, it will change the makeup of the capital market, and you’ve seen some early sign of that,” referring to increased shareholder returns.

The buybacks and dividends were introduced as part of proposals by Chinese authorities in September to lift stock prices and boost consumer sentiment.

The benchmark CSI 300 index has struggled in recent years, down more than 27% since 2021 against a 65% rise for the S&P 500. The market value of Chinese stocks has stagnated for a decade at around $11 trillion.

Lingering concerns over the indebted property sector, deflationary pressures, lack of big stimulus and geopolitical tensions have hurt sentiment, causing a foreign investment exodus. The threat of tariffs from Trump is another worry.

Even after Beijing showed willingness to boost the market in September, stock prices have lost momentum. The CSI300 index surged 40% in the two weeks after the first stimulus announcements but disappointment with the degree and pace of implementation has seen gains halve since then.

“The simple way to look at it, you should be paid enough of a dividend … for you to take the pain of the fact that the recovery might not happen in valuations,” said Bhaskar Laxminarayan, chief investment officer for Asia at Julius Baer (SIX:BAER).

“You’re being paid for that patience. If you’re not, then it’s not worth it.”

BIG DATA

Chinese firms distributed dividends totalling a record 2.4 trillion yuan ($329.7 billion) in 2024. Share buybacks too rose to a record high 147.6 billion yuan last year, data from regulators showed.

Wu Qing, head of the China Securities Regulatory Commission, said on Thursday that more than 310 companies are expected to pay out dividends totalling more than 340 billion yuan in December and January.

That is a 9-fold increase in the number of companies and a 7.6-fold rise in dividend amount versus the same period last year.

In a sign of how the market is maturing into one where shareholder return is becoming a differentiator, investors have been steadily pouring into dividend-themed exchange-traded funds (ETFs), with nearly $8 billion of inflow since 2020, compared with just $273 million in the previous five years, LSEG Lipper data showed.

The CSI Dividend Index – comprised of traditional energy, financial and material companies that yield high dividends – is up 20% in the past five years compared with a drop of about 8% for the blue-chip CSI300 index.

The CSI growth index sank 25% in the same period.

CULTURAL SHIFT

Policy measures, including a 300 billion yuan share buyback financing programme and guidelines requiring mainland companies to improve shareholder returns and valuations, have helped sharpen the focus on higher-yielding firms.

“China was never a dividend-yielding asset class as a whole, because it was always seen as a growth-oriented play. But now I think we’re in a nice sweet spot where you have both growth and yield,” said Nicholas Chui, China portfolio manager at Franklin Templeton.

Roughly two-thirds of the stocks in Chui’s portfolio are now yielding at least 2%, which is “not just a deliberate allocation on my part, but really the entire market has gone up in yield,” Chui said. “It’s a change in culture.”

Rising dividends also prevent income-seeking mainland investors from rushing into bonds, as they have done for months. The dividend yield is now well above the 1.7% they can earn on 10-year government bonds.

Shares of battery maker Contemporary Amperex Technology and e-commerce behemoth Tencent rose after the companies announced buybacks or dividend payouts.

Goldman Sachs estimates Chinese companies listed at home and abroad could return a total 3.5 trillion yuan to shareholders in 2025, a jump of over 17%.

“Companies don’t know where to put their cash, so they return it now to shareholders. This is a very big shift in mindset,” said Herald van der Linde (NYSE:LIN), head of equity strategy for Asia-Pacific at HSBC.

“I think 10 years ago, you wouldn’t have expected this.”

($1 = 7.2798 Chinese yuan)

By Humeyra Pamuk, Maggie Michael and Lena Masri

WASHINGTON (Reuters) – The Trump administration urged U.S. Agency for International Development (USAID) workers to join the effort to transform how Washington allocates aid around the world in line with Trump’s “America First” policy. It threatened “disciplinary action” for any staff ignoring the administration’s orders.

A sharply-worded memo sent on Saturday to more than 10,000 staff at USAID offered further guidance to Friday’s “stop-work” directive that effectively put a sweeping freeze on U.S. foreign aid worldwide. The memo, reviewed by Reuters, laid out expectations for the workforce on how to achieve Trump’s goals.

“We have a responsibility to support the President in achieving his vision,” Ken Jackson, assistant to the administrator for management and resources wrote in the internal memo, titled “Message and Expectation to the Workforce.”

“The President has given us a tremendous opportunity to transform the way we approach foreign assistance for decades to come,” the memo said. Reuters confirmed the authenticity of the memo with several sources.

Since taking office last week, Trump has taken steps toward fulfilling his vow to remake a federal bureaucracy he believes was hostile to him during his 2017-2021 presidency. He has reassigned or fired hundreds of federal workers in simultaneous moves against a swath of agencies.

Hours after taking office, Trump ordered a 90-day pause in foreign aid to review if it was aligned with his foreign policy priorities. On Friday, the State Department issued a stop-work order worldwide even for existing and appropriated assistance, calling into question billions of dollars of life-saving aid.

The United States is the largest single donor of aid globally. In fiscal year 2023, it disbursed $72 billion in assistance.

USAID and the White House National Security Council (NSC) did not immediately respond to a request for comment on this story.

Friday’s memo shocked the humanitarian groups and communities conducting development aid across the globe. While the scope of the directive appears far-reaching, uncertainties linger over how it will be carried out.

The memo on Saturday offered only partial clarity.

The pause on foreign aid spending means “a complete halt,” it said. The only exceptions are for emergency humanitarian food assistance and for government officials returning to their duty stations. Waivers allowing delivery of emergency food during the review period will require “detailed information and justification.”

The memo said further waivers would require two layers of approval – one from USAID leadership and another by U.S. Secretary of State Marco Rubio.

“Any waiver must be thoroughly justified to demonstrate that the specific assistance for which the waiver is sought is necessary for lifesaving purposes, cannot be performed by current U.S. direct hire staff, or would otherwise pose significant risks to national security,” the memo said.

All foreign assistance programs will undergo “comprehensive review” during the pause in spending, the memo says. “It is important to emphasize that it is no longer business as usual. Every program will be thoroughly scrutinized.”

Saturday’s directive also banned any communications outside the agency, including between USAID and the State Department, unless they are approved by the former’s front office.

“Failure to abide by this directive, or any of the directives sent out earlier this week and in the coming weeks, will result in disciplinary action,” it said.

Separately, USAID sent contractors a notice ordering them to “immediately issue stop-work orders” and to “amend, or suspend existing awards.” 

Humanitarian organizations and other donors are scrambling to understand how the directive will impact life-saving operations in countries across the globe. It is too soon to tell whether or what specific services will have to be paused, they said.

In 2024, the U.S. provided 42% of all humanitarian aid tracked by the United Nations.

Investing.com – The 2020s kicked off with a global pandemic that forced billions of people into lockdown and heavy government stimulus measures in response to the crisis.

What followed was a boom in economic growth, a surge in inflation, and a jump in interest rates — all against an environment of renewed violence in several regions around the world and the emergence of artificial intelligence.

This has all translated into 563 rate hikes, $7 trillion in quantitative tightening, a cumulative $11 trillion US deficit, $36 trillion in national debt, and $1.2 trillion in annual US interest payments over the opening half of the decade, analysts at Bank of America flagged in a note to clients.

However, they argued that perhaps the biggest change for asset prices has come from an inflection in bond yields, which move inversely to prices. An uptick in benchmark 10-year US Treasury yields to their long-term average after a pandemic-era drop “has led to frequent booms and busts in asset prices, with the former more concentrated than the latter”, the analysts said.

“Ultimately, macro has dominated over the past five years,” they said.

But, as the back-half of the 2020s dawns, an “era of micro” may be about to begin, the analysts predicted.

“We think micro themes will dominate macro in the coming 5 years: tech transforming our economy against a backdrop of populism, AI resource bottlenecks, generational shifts in power and wealth, and a return of government fiscal discipline,” they wrote.

In particular, the change to a focus on micro trends will be driven by accelerating technological disruption fueled by the widespread adoption of AI in both businesses and societies, they said.

Productivity growth will have to increase in turn in order to justify soaring tech sector equity valuations and prices, while AI itself will require “more of everything — from resources to infrastructure”, the analysts argued.

“These huge funding requirements could not come at a less opportune time: record government debt and populist policies will prioritize breaking the inflation cycle in the US and reviving stagnant growth at the heart of Europe,” they wrote, adding that they foresee “backlashes” to the disruptive force of AI over the rest of the decade.

Generation Z, also known as “Zoomers”, will subsequently “have a major say in the government response and the extent to which AI disrupts our societies and the labour market, as well as how government debt is managed,” they said.

By David Morgan

WASHINGTON (Reuters) – Republicans who control the U.S. House of Representatives are trying to overcome internal differences on how to pay for President Donald Trump’s sweeping tax cuts, with hardline conservatives determined to reduce an annual federal deficit approaching $2 trillion.

With a narrow 218-215 House majority, they need near-total unity as they prepare to vote within weeks on a fiscal 2025 budget resolution that will be a critical step toward passing Trump’s sprawling agenda of tax cuts, border and immigration reform, energy deregulation and increased military spending.

Ahead of a three-day policy retreat that kicks off in Miami on Monday, some worried openly that House Speaker Mike Johnson’s leadership team might balk at the spending cuts needed to offset the cost of Trump’s $6 trillion tax-cut agenda while also addressing the nation’s more than $36 trillion in debt.

Republicans have vowed to extend Trump’s tax cuts from the 2017 Tax Cuts and Jobs Act, or TCJA, which are set to expire at the end of this year. The nonpartisan Committee for a Responsible Federal Budget estimates that doing so would cost more than $4 trillion over ten years, while Trump campaign pledges to eliminate taxes on tips, overtime and Social Security benefits could cost another $1.8 trillion.

Failure to reach agreement could trip up Republican lawmakers’ plan to pass Trump’s agenda by the end of May, using a maneuver to bypass Senate Democrats that will require almost all of the fractious majority to agree.

“Most of us support the TCJA. I don’t think that’s the issue. We all want to support what President Trump is doing. But we also recognize the need to get our fiscal house in order,” said Representative Michael Cloud, a member of the hardline House Freedom Caucus.

“We’ve got to have a course correction, and it’s got to be dramatic,” he told Reuters.

Johnson said he hopes to finalize components of a single sprawling legislative package to fund Trump priorities. Republicans must also decide whether to include an increase in the federal government’s debt ceiling — which Congress must do later this year to avoid a devastating default — and disaster relief for Los Angeles communities devastated by wildfires.     

“There are a number of ideas on the table,” Johnson told reporters before lawmakers left Washington last week, saying his caucus aimed to reach agreement in Miami.

House Democratic leader Hakeem Jeffries blasted Republican plans as “a contract against America.” He warned: “It will hurt working families, hurt the middle class, hurt our children, hurt our seniors and hurt our veterans.” 

Jeffries also said the Republican agenda would undermine the Medicaid healthcare program for the poor, as well as government-subsidized healthcare for uninsured workers under the Affordable Care Act.

COST OF TRUMP AGENDA

Republicans say they face a major challenge finding enough spending cuts to cover the cost of the Trump agenda and worry privately that hardliners’ insistence on significant deficit reduction could harm their constituents by reducing Medicaid funding for hospitals and outlays for other community services.

“This thing cannot be deficit neutral,” said Republican Representative Ralph Norman, adding that the package would need to reduce the deficit “to the tune of a big number.”

Another potential roadblock: The rising U.S. deficit is weighing on the bond market, pushing the nation’s borrowing costs higher. A significant deepening of the deficit could add to those worries.

‘THIS IS AN EQUAL BODY’

The debate will test which is more powerful — Trump’s demands or hardliners’ will to hold to a traditional Republican goal of cutting the deficit.

“The president said very clearly what he wants. Now the question is, what do we want? This is an equal body … We’re supposed to have different opinions. If we don’t, we’re in trouble, because we’re no longer a constitutional republic, said Representative Richard McCormick (NYSE:MKC).

The House Budget Committee has circulated a 50-page menu of proposals that includes trillions of dollars ranging from ideas widely supported in the party, such as repealing green energy tax credits, to the controversial, including the federal home mortgage interest deduction.

A proposal to raise $1.9 trillion from a 10% tariff on imported goods, which Trump has proposed, also faces opposition from House and Senate conservatives. 

“I’m not in favor of raising taxes. Tariffs are simply a tax,” said Republican Senator Rand Paul, a leading fiscal hawk.

Even as Republicans try to edge toward agreement, Representative Tim Burchett said he worries that up to $200 billion in proposed additional funding for the Pentagon could absorb savings that he would rather use to address the deficit. But he stopped short of saying that such an outcome would lead him to oppose the package.   

“If I see us trending in the right direction, that might be enough,” Burchett said. “But again, we’re lying to ourselves, and we’re lying to the public. We go home and say, we’re going to do these things. And then we come up here and wink and nod and sell the people down the river. And we go home and get reelected. It’s a crazy system.”