What we know
Earlier this month, President Trump released his "skinny" budget proposal to fund the federal government for fiscal year 2018. Bottom line, the budget blueprint puts the federal government on a diet.
The Office Management and Budget (OMB) Director Mick Mulvaney is in charge of cooking up the U.S. budget and making sure the Trump Administration doesn't overspend. Mulvaney describes how this budget does that by shrinking the government, driving efficiencies, and going after wasteful and duplicative programs.
The White House's topline message is: "America First." That was Trump's message in his inauguration speech in January and you're seeing that theme woven throughout his budget proposal.
The Administration has called this a "hard-power budget" that sends the message to our allies and adversaries that it is being intentional. For example, the budget proposes boosting spending on defense ($54 billion increase) and ponying up money for border enforcement, including paying for the proposed border wall with Mexico ($1.5 billion to start this year, then $2.6 billion in FY18).
Why is it "skinny"?
First, it's expected that the first annual budget is short. But just on length alone, Trump's budget is more condensed when compared to previous incoming President's budgets.
While there is not much meat on the bone, there are several important budget lines to note that will specifically impact the way America trades and with whom we trade.
How is trade prioritized in those 53 pages?
U.S. Department of Commerce
The President's budget requests $7.8 billion for the Commerce Department, a $1.5 billion or 16 percent
decrease from 2017. Commerce oversees the promotion of American businesses and enforcing U.S. trade remedy laws, among other responsibilities like conducting the census and maintaining weather satellites.
The budget suggests that the International Trade Administration's (ITA) trade enforcement and compliance functions, including the anti-dumping and countervailing duty investigations which are administered by the Import Administration, would be strengthened. Last fall, I predicted that the Trump Administration would prioritize trade enforcement and it's becoming more likely that Commerce will self-initiate trade remedy cases.
Conversely, ITA's trade analysis would be "rescaled", meaning that the numbers used for trade negotiations may come at a slower pace. And the data for Commerce's self-initiated cases may either take longer to collect or perhaps be less reliable. The budget also cuts funding export promotion. As a result, U.S. exporters may be on their own when it comes to marketing their products in foreign markets.
But the part that stumps me is that the Administration is focusing on enforcing laws that promote fair and secure trade. We've heard Trump talk about his support for "free and fair" trade, most recently in the press conference with Germany. However, this "secure trade" term isn't found anywhere in U.S. law or in any prior Administration statements, so it's unclear what this means.
Retailers should ensure accuracy in their trade compliance programs and review their supply chains to prepare for this increased trade enforcement posture.
U.S. Department of State
The President's budget requests $25.6 billion in base funding for the State Department and USAID, a $10.1 billion or 28 percent reduction from 2017. A quarter of the State Department's budget would be eliminated and any remaining funds would be used to refocus economic and development assistance to countries with greatest strategic importance to the United States. How countries such as South Korea, which hosts nearly 30 U.S. military facilities, and Germany, which hosts nearly 40 U.S. military facilities, are prioritized within this ranking system is yet to be seen.
Foreign aid is used to build capacity abroad to ensure government and economic stability and provide technical assistance such as trade facilitation. In total, the U.S. foreign assistance budget makes up only 1 percent of the total federal budget of over $4 trillion. There's a lot of misunderstanding about how foreign aid is used and how we measure America's return on investment.
In addition, Trump's FY18 budget proposal also cuts funding for multilateral development banks, including the World Bank, by approximately $650 million over three years. The U.S. would remain a top donor, but opportunities to reduce global poverty and grow the size of the middle-class, who are our target customers, around the world would be slowed.
The budget also proposes to eliminate the U.S. Trade and Development Agency, which for decades has worked with partner nations to modernize air, surface and maritime infrastructure to facilitate the movement of goods and people. Abolishing this agency could mean the loss of critical public-private infrastructure partnerships and opportunities to export goods and services in sectors where U.S. businesses are most competitive.
Retailers may need to seek new private partnerships for trade capacity building in foreign markets rather than relying on U.S. federal funds or initiatives.
U.S. Department of Homeland Security
The President's budget requests $44.1 billion for the Homeland Security Department (DHS), a $2.8 billion or 6.8 percent increase 2017. U.S. Customs and Border Protection (CBP) is housed within DHS, but there's no mention about the $46 billion in duties, taxes, and fees collected by CBP, a large revenue source for the federal government after taxes paid to the Internal Revenue Service. No further investment to facilitate trade at the border or enforce U.S. trade laws, which may be a sign that this Administration is going to prioritize security over trade facilitation.
Instead, the focus of DHS's budget was on security and immigration enforcement, including the construction of a border wall along the southern border with Mexico. There was also $15 million more dedicated to the E-verify program, which is a voluntary (though mandatory in some states) internet-based system that helps businesses determine new hire eligibility to work in the United States. The budget also proposes to raise the Passenger Security Fee to recover 75 percent of the cost of aviation security operations, which means your business travel may get more expensive.
While immigration will continue to be a priority for this Administration, retailers should continue to advocate for a balanced prioritization of trade facilitation and trade enforcement.
U.S. Department of Treasury
The President's budget requests $12.1 billion for the Treasury Department's domestic programs, a $519 million or 4.1 percent decrease 2017. While the priority is set on collecting revenue due to the federal government, Treasury's resources will be focused on collecting revenue, managing the Nation's debt, protecting the financial system from threats, and combating financial crime and terrorism financing.
U.S. Department of Labor
The President's budget requests $9.6 billion for the Labor Department, a
$2.5 billion or 21 percent decrease from 2017. While much of DOL's funding is dedicated to domestic workforce issues, the Trump Administration's proposal would refocus the Bureau of International Labor Affairs (ILAB) on ensuring that U.S.trade agreements are fair for American workers. The budget eliminates $60 million in grant funding because it is "largely noncompetitive and unproven." However, many of these grants are used by non-governmental organizations to build capacity in the same foreign countries that the Trump Administration wants to review for their labor practices.
U.S. Department of Agriculture
The President's budget requests $17.9 billion for the Agriculture Department, a $4.7 billion or 21 percent decrease from 2017 (excluding food aid). While food safety inspection programs will be fully funded to protect our nation's food supply, statistical capabilities that help commodity farmers and trade negotiators analyze trade data will be cut.
In addition, the budget proposal eliminates the McGovern-Dole International Food for Education program due to the lack of evidence that it is being effectively implemented to reduce food security. For U.S. agricultural commodity farmers, this program has helped send surplus agricultural products to developing countries where food security is an issue. While it's likely to be considered "soft power" by this Administration, it comes at a potential opportunity lost to U.S. agricultural producers.
Role of Congress
One thing to keep in mind is that Congress holds the purse strings. However, as the leader of the Republican Party, Trump's budget proposal does provide guidance for Republicans in the House of Representatives and Senate to cut funding to these various trade functions within the federal government.
Also, how Congress deals with the growing national debt that's approaching $20 trillion is yet to be seen. The critical question is whether Congress will go back to balancing the budget, which the non-partisan Congressional Budget Office has estimated to be about a $488 billion deficit in FY18, and how those difficult decisions about where to invest will bolster trade and economic opportunity for American companies and workers.
Let me know if any of these programs are important to you.