China – With the passage of the America Competes Act in the House last week, attention now turns to negotiations with the Senate.

We could prattle on endlessly about the various provisions in the House and Senate bills, but we won’t.  The bottom line is that the final product will likely strongly resemble the Senate-passed “United States Innovation and Competition Act” (USICA).  The reason has to do with one number: 60.  Any provisions that jeopardize getting sufficient Republican votes to cross that threshold will be cut.

Our sense is that, with Build Back Better dead, the White House and its compatriots in Congress are searching for a big win.  This is their opportunity.  Thus, it’s entirely possible that this bill becomes a veritable smorgasbord of provisions, many of which are likely to be embarrassingly unrelated to confronting America’s chief geopolitical adversary—all solely focused on simply passing something.

Though many members could get what they want, the bill could become so freighted with pork that the left and the right attack the bill to death.

To our minds, this means Senate Republicans have some leverage.  Pay close attention to ranking members Roger Wicker (R-MS), Mike Crapo (R-ID), Jim Risch (R-ID), and Pat Toomey (R-PA) who will help lead negotiations, and each of whom included language in USICA. Senators John Cornyn (R-TX) and Todd Young (R-IN) also will play key roles.  These members could simply keep provisions they prefer in the House-passed bill, and throw out the rest, while adding their USICA language.  If Democrats object, then Democrats have no bill.

Of course, if Republicans are accused of deep-sixing the bill, the refrain will be, “Republicans are weak on China!”  But will Republicans ultimately care?  There are enough provisions in both bills that could be isolated and attacked with a ruthless cost-benefit test, the cost being (in their likely words) taxpayer-financed subsidies for big corporations and coddling China over trade and climate change, while there are no real benefits to offer.

China continues to be a volatile issue that both sides must play carefully.  So, with BBB pushed backstage, expect the temperature to rise along with the political stakes over this bill.

 

Federal Reserve – All five pending Federal Reserve nominees, including Chair Jay Powell and Sarah Bloom Raskin, will have their nomination markups on February 15.  Chair Powell has broad bipartisan support and could be considered by the full Senate soon after his markup, while the fate of Sarah Bloom Raskin’s nomination appears dicier.

Senate Republicans in the Senate Banking, Housing, and Urban Affairs Committee unanimously oppose her nomination.  Republicans assert that Raskin thinks the Fed should pick winners and losers in the energy sector—a view Republicans find repugnant. Senate Majority Leader Mitch McConnell (R-KY) criticized Raskin on the Senate floor saying, “In 2020, she said unelected bureaucrats should have excluded companies that employ Americans and produce American energy from widely-available rescue loans because oil and gas are not green enough for liberals’ liking. This is the same, old Democrat war on fossil fuels and Middle America — being smuggled into a dangerous new forum.”

With a tie vote expected, Senate Democrats will be forced to vote on the floor to discharge her nomination from the committee.  In addition, should the entire Republican conference remain opposed, Vice President Kamala Harris will be required to confirm Raskin. Sen. Ben Ray Luján (D-NM) is not expected back in the Senate for four to six weeks, and it could be a while until Raskin is sworn in at the Fed. Sen. Joe Manchin (D-WA) hinted he would support Raskin when he said of the Fed nominees, “They all look extremely qualified.”

 

Appropriations – An agreement on topline spending and policy riders remains elusive for the so-called Big 4 while the continuing resolution, extending to March 11, will likely pass by the end of the week.

Republicans want dollar-for-dollar spending for defense and non-defense accounts as well as maintaining the Hyde Amendment and other Trump-era policy riders.

Appropriators, as one might expect, are optimistic about an omnibus deal, but some non-appropriator Republicans are skeptical.  At this point, we’re leaning toward the former, who seem capable of cobbling deals together even amidst deep-seated partisan rancor.  After all, they deal in money (or IOUs from the Treasury), not to mention the possibility of securing state- or district-friendly provisions (let’s not call them earmarks).

Additional COVID-related spending faces an uphill battle as far as Republicans are concerned. Leader McConnell stated on the floor, “Now we hear Democrats may request yet another huge chunk of emergency spending. But experts say as much as $800 billion or $900 billion of the money that we’ve already set aside has not even been spent yet. What about a full accounting of the $6 trillion that’s already been approved?”

 

Ukraine – The debate over how the US should respond to Russia’s aggression against Ukraine is revealing serious divisions among Republicans on foreign policy.  President George W. Bush’s era of interventionism has been on the wane within the party for years. Older and more established Republicans, especially in the Senate, are calling for the US to send weapons and communications equipment, provide logistical and intelligence support, and impose crippling sanctions.  Younger Republicans have been taking more of an isolationist stance (now being promoted by Tucker Carlson and former President Trump).

For many Republicans, one of former President Trump’s greatest accomplishments was that he didn’t start any new American-led wars or interventions. Politically, as many Republicans see it, the Biden Administration is more focused on Ukraine’s border than our own. The decisions made by President Biden in the coming days will face heavy scrutiny and criticism by Republicans who have no faith in the President’s national security team following the disastrous withdrawal in Afghanistan.

Meanwhile, members of the Senate Foreign Relations Committee continue to put the final details together on a sanctions bill that could be on the Senate floor in the coming days. Sanctions related to the Nord Stream 2 pipeline remain a top priority for a select group of Republicans.