Policy Week in Review - House Clears the Decks, Senate’s Next Steps, Replacement Tariffs Take Effect as Oil Rises

In This Edition: 

• House Republicans clear the legislative decks before recess.

• Handicapping the odds of a shutdown in October. 

• Predicting the Senate's next steps on reconciliation.

• The White House is replacing expiring Section 122 tariffs on 60 countries with tariffs under Section 301 that could total up to $371 billion annually.

• President Trump says he’s considering a “massive attack” on Iran.

• Gas prices surged again, with the price of oil up 40% since the conflict began. 

• President Trump strikes a nuclear energy technology deal with Saudi Arabia.

House Republicans Clear the Decks Before Recess 

House Republicans and the White House scored a number of major victories this week. In the face of Democratic opposition and uncertainty in the Senate, Speaker Mike Johnson (R-LA) was able to clear several key priorities, most of which were endorsed by President Trump this week. 

• Continuing Resolution (CR) to fund the government through December 4, 2026. 

• Budget resolution to begin the next reconciliation effort. 

• $1.1 trillion funding authorization for defense in 2027.

• $73 billion funding for military operations against Iran. 

• $12 billion in direct payment aid to farmers. 

• $10 billion in SAVE America Act grants for states to enact voter ID.

• Banning Members of Congress from directly trading stocks. 

• Banking reforms meant to create access to consumer credit. 

Success in the House does not mean that these bills have a clear path in the Senate. Republican leadership in the upper chamber is mapping out a path forward that would delay consideration of reconciliation funding and voter ID grants, much to the frustration of conservatives and the White House. 

Passage of these bills does, however, start the ball rolling on each of these policies. Many observers in Washington thought several of these bills would fail and leave House Republicans stalled heading into August. The pressure is now on Democrats to decide if they want to shut down the government and Senate Republicans to pass voting reform through reconciliation.

Does House Democrat Opposition to the CR Foretell a Shutdown? 

Traditionally, bills to temporarily extend government funding have been bipartisan and subject to a 60-vote threshold in the Senate. This week, only six House Democrats supported a clean CR on the floor. That bill ultimately passed the House by a vote of 220-205. 

The path forward for the spending bill in the Senate is still unknown. Here are the three scenarios that could play out in order of their likelihood. 

1. Bipartisan Continuing Resolution: Democrat votes on the House floor aren’t necessary to fund the government, but they are in the Senate. The fastest and easiest way to avert a shutdown is if both sides can strike a CR deal in the Senate. However, Senate Minority Leader Chuck Schumer’s (D-NY) left flank opposes any bipartisanship, and he may have to appease them. On the other hand, Democrats may not want to cause a major upheaval before a midterm where they have distinct advantages over Republicans. 

2. Reconciliation: If Senate Democrats want to force a shutdown, Republicans could circumvent their obstruction by using the reconciliation bill to pass a CR. The process would exclude any Democratic input. Senate Majority Leader John Thune (R-SD) is using the threat of partisan government funding as a stick to force Democrats to negotiate on a short-term CR. 

3. Government Shutdown: The Democratic left flank wants Leader Schumer to oppose any compromise. If he feels that funding the government threatens his job as leader, Schumer could force a shutdown while Republicans strategize and shift tactics. A shutdown would be risky political theater for Democrats but cannot be ruled out. 

Senate’s Priorities Before August Recess 

While the House is gone for August, the Senate is in session for two more weeks and isn’t scheduled to adjourn until August 7. Senate Majority Leader Thune outlined and ranked his priorities for the Senate which does not include reconciliation or the SAVE America Act, much to the dismay of President Trump. 

Continuing Resolution: Leader Thune says the top priority is government funding and has deputized Appropriations Chair Susan Collins (R-ME) to draft a clean, bipartisan CR. We’ll know in the next two weeks whether cooler heads prevail and moderate Democrats play ball. 

National Defense Authorization Act (NDAA): The Senate NDAA includes a total of $1.15 trillion in authorized spending for 2027, including $1.098 trillion for the Department of War and $52 billion for defense activities within other agencies. Despite support from the ranking Democrat on the Armed Services Committee, Democrat Leader Schumer blocked the bill last week. The House passed its NDAA 216-212 this week. 

Russia Sanctions: A key priority of the late Senator Lindsey Graham (R-SC), a bill applying broad sanctions against Russia has won bipartisan support and the backing of President Trump. Intended to deprive Russia of revenue as it continues its war against Ukraine, the bill would impose sanctions on Russian military and political leaders, state-owned enterprises, and foreign defense companies working with Russia. It also empowers the U.S. Trade Representative (USTR) to impose tariffs of up to 100% on the top five countries purchasing Russian oil and gas. Some Senate Democrats are expressing opposition to giving the Administration additional tariff authority.

FISA Section 702 Surveillance Authority: Reauthorization of Section 702 of the Foreign Intelligence Surveillance Act (FISA) remains stalled and blocked by Democrats in the Senate. Look for another attempt to pass a reinstatement before the Senate adjourns. 

Punting Digital Asset Regulatory Structure (CLARITY Act) Until September: The bill establishes two distinct federal regulatory structures for both digital currencies that are pegged to the U.S. dollars and other cryptocurrencies that are traded as commodities. Senate Republicans released updated legislative text this week. The odds of the bill being signed before the new year are high. Leader Thune indicated Thursday the bill will not pass before the August recess.

Punting Until the Lame Duck: A few “must pass” bills and top priorities are almost certainly going to get short-term extensions into a lame duck Congress after the election. Those include: 

• FY 2027 regular appropriations. 

• $350 billion supplemental military funding under reconciliation

• Farm Bill reauthorization.

• Highway Trust Fund and transportation reauthorization. 

• Export-Import Bank Reauthorization.

• NDAA conference report and final passage. 

Replacing Section 122 Tariffs with $371 Billion in 301 Tariffs

Last night, the Trump Administration announced that it would impose Section 301 tariffs on 60 economies and enforce prohibitions on goods made with forced labor. The new tariffs come after USTR announced an investigation in June and undertook two rounds of hearings.

The new 301 tariffs will essentially serve as a replacement for blanket 10% tariffs under Section 122 of the Trade Act of 1974. Section 122 tariffs were implemented in February after the U.S. Supreme Court struck down tariffs under the International Emergency Economic Powers Act (IEEPA). Under statute, those tariffs can last only 150 days and expire today.

Section 301 Proposed Tariffs Take Effect Friday: On June 2, 2026, the Office of the United States Trade Representative (USTR) proposed tariffs ranging from 10% to 12.5% on 60 countries, citing allegations of forced labor. On Friday, these tariffs will take effect. Unlike the Section 122 tariffs, the Section 301 tariffs would have no set expiration date and would serve to replace many of the IEEPA tariffs removed by the Supreme Court.

Projecting the Cost of New 301 Tariffs: According to our updated analysis based on 2025 imports, the new Section 301 tariffs could total $371.74 billion in annual revenue if fully implemented.

Trump Gives U.S. Companies Deadline to Reshore Generic Drugs or Face Tariffs: President Trump signaled that reshoring the manufacturing of generic drugs in the United States is a goal for his final two years in office. On Tuesday the President announced a new, phased schedule for tariffs on generic drugs imported into the U.S. in order to encourage domestic production. Under the plan, tariffs of 100% will be applied to foreign generic drugs starting on August 1, 2028 

New Tariffs on Canada: Separately, President Trump announced on Monday that he would be imposing an additional 50% tariff on certain Canadian goods “in response to Canada’s discriminatory treatment of American products.” Specifically, the administration is utilizing Section 338 of the Tariff Act of 1930 to impose tariffs on “products ranging from wine to hockey sticks to cement” covering all goods “regardless of whether [it] originates under the [USMCA].” The tariffs will take effect 30 days after the signing of the proclamation. The Administration specifically cited unfair treatment of American automobile, alcohol, and dairy exports as the reason for the additional tariffs.

The tariff announcement comes just a few weeks after the administration stated it would not agree to renew the United States-Mexico-Canada Agreement (USMCA). While negotiations have continued with Mexico, trade negotiations with Canada have reportedly proven to be more contentious. This announcement could be a means to speed up the process. 

Military Strikes Against Iran Continue

As U.S. Central Command continues to conduct military strikes on Iran to degrade its capabilities and to stop Iranian attacks on civilian commercial ships in the Strait of Hormuz, President Trump acknowledged in an interview on Thursday that he is close to making a decision on restarting major combat operations. The President said, “I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it.” 

Setting the stage for the President’s remarks, the U.S. over the past week has surged forces towards the Middle East. President Trump had earlier warned Tehran that he may target Iran’s bridges or power plants if it continued to attack vessels attempting to transit the Strait. President Trump also made clear that Iran would be held responsible for future attacks by Houthi militants after the Iran-backed, Yemen-based group claimed responsibility for striking two Saudi oil tankers in the Red Sea. 

The President’s public statements follow speculation that Iranian drone attacks on CIA facilities in the Gulf were conducted with the assistance of Russian targeting information or drone technology.

Meanwhile at home, the House voted 214-208 in favor of a concurrent resolution directing the President to remove United States Armed Forces from hostilities with Iran. Democrats voting in favor of the measure - which does not carry the force of law but is guaranteed Congressional floor time under the War Powers Act - were joined by four Republicans: Representatives Thomas Massie (R-KY), Brian Fitzpatrick (R-PA), Tom Barrett (R-MI), and Warren Davidson (R-OH). 

Gas prices are once again spiking with prices up at least 40% since the conflict began. 

President Trump Approves Nuclear Deal with Saudi Arabia

The U.S. Department of Energy this week announced that the United States and Saudi Arabia had “signed a peaceful nuclear cooperation agreement, commonly known as a 123 agreement, alongside an accompanying bilateral safeguards agreement. Together, these two agreements lay the legal foundation for a decades-long, multi-billion-dollar partnership that advances several priority economic and strategic objectives, including nuclear nonproliferation.” 

The deal reportedly allows American companies such as Westinghouse Electric to provide Saudi Arabia with new power reactors and nuclear technology while closing the door to foreign companies. The enriched uranium under this agreement would not be available for military use. Congress has 90 days to review the agreement.

A day after the agreement was signed, the President stated that the nuclear agreement was contingent on Saudi Arabia normalizing relations with Israel. According to White House press secretary Karoline Leavitt, if Saudi Arabia doesn’t “join the Abraham Accords, the deal is off.”

Trade Agreement with Jordan

This week, the White House announced a reciprocal trade agreement with Jordan. Among other things, the agreement includes: duty-free market access for almost all U.S. goods exported to Jordan; a commitment from Jordan to improve trade by enforcing environmental laws, protecting labor rights, and strengthening intellectual property protections; removing non-tariff trade barriers for U.S. agricultural products and motor vehicles, and enhancing supply-chain resilience through actions to address non-market policies of other countries.