US Economy: July Will Bring Key Deadlines in Tax and Trade Negotiations

■ In July, the Senate has deadlines to pass the tax reform bill (4th) and to finish tariff negotiations (9th), with events following one after another.  
■ Although the chances of a rate cut at the July FOMC meeting are low, this week's labor statistics will be crucial in deciding whether there will be an early rate cut. 
 
    The United States will confront several significant policy deadlines and events in July. The bills related to the permanent income tax cuts that President Trump aims to pass will face a Senate approval deadline on July 4 (Independence Day). The tax reform bill was approved by the House of Representatives on May 22 and is now under review in the Senate. A vote on amendments is expected soon. However, passing the bill requires convincing the fiscal discipline faction, which demands further fiscal cuts, and the moderate faction, which advocates for expanding Medicaid and renewable energy subsidies, so agreement may be challenging. Additionally, the Congressional Budget Office (CBO) estimates that if the Senate version passes, US government debt could increase by about $3.9 trillion by fiscal year 2034. Therefore, if the bill passes, concerns about worsening fiscal deficits may push up long-term interest rates and cause financial capital to "move away from the US dollar." Conversely, if the bill fails, Trump's tax cuts will expire at the end of this year, and the US economy could lose support. In any case, the outcome of the bill's review will be a major focus for US markets. 
 
    For more than a dozen trading partners, including Japan, the temporary suspension of mutual tariffs implemented by the US will expire on July 9. On June 27, US Treasury Secretary Bessent said that "negotiations with major trading countries may reach an agreement before September 1 (Labor Day)," suggesting that the negotiation period could be extended. However, on June 30, his stance changed, saying that "whether to extend it will be decided by the president" and that "if the negotiating countries are tough and cannot reach an agreement, it is possible to return to the level (of mutual tariffs announced) on April 2." Under mounting pressure to reach an agreement, many decisions are expected to be made between the US and other countries before the deadline. Additionally, the scope of US government actions is expanding from tariffs to international taxes. Canada was originally scheduled to implement digital service taxes on the 30th, but President Trump called it a "direct and blatant attack" on American high-tech companies and threatened to "terminate trade negotiations immediately," prompting Canada to withdraw. The two countries are continuing negotiations to reach an agreement by July 21.