Policy Week in Review - Trump’s Trip to China, Reconciliation “Byrd Bath” & Economic Bills on the Move

Key Takeaways

• President Trump returns from China without a major breakthrough on Iran. 

• The Senate parliamentarian is reviewing DHS funding legislation for rules compliance.

• The so-called “Byrd bath” will necessitate legislative changes before a vote next week on the $72 billion Reconciliation 2.0 bill.

• Despite re-drafting, we expect the bill on the President’s desk by next weekend.

• Congress and the White House are trying to push stalled economic bills quickly. 

• These include digital asset market structure and federal housing program reform. 

• Hurdles remain, but there is a path to pass digital asset legislation by July 4.

• The housing reform bill requires more work but will likely be signed by August. 

• President Trump rejected an Iranian peace proposal as Congress rebuffed another War Powers Act resolution to limit war operations. 

• Congress considers a gas tax suspension (unlikely) and year-round E15.

President Trump Wraps up China Visit

President Trump departed China this morning after his much-watched visit. Both sides expressed a desire to reach “strategic stability in our relationship.” However, there were few major agreements or policy breakthroughs that appear to have lasting tails. 

As part of the two-day summit, President Trump and President Xi discussed the Iran war and the importance of keeping the Strait of Hormuz open to commercial traffic. China is propping up Iran's economy as the largest buyer of Iranian oil. In addition, there are now reports that China could be aiding Iran’s military with arms sales, a practice that President Trump says will stop after President Xi pledged not to provide military equipment to Iran. The blockade in the Strait of Hormuz is also driving up fertilizer prices for American farmers.

Secretary of State Marco Rubio relayed that “[t]he Chinese side said they are not in favor of militarizing the Straits of Hormuz, and they’re not in favor of a tolling system, and that’s our position.” According to Treasury Secretary Scott Bessent, China will use its influence with Iran behind the scenes to help reopen the Strait.

Other issues addressed between President Trump and President Xi during the visit included:

• Agriculture purchases.

• Energy purchases.

• Purchases of Boeing airplanes.

• Taiwan arms sales. 

• AI sales and export restrictions. 

• Iran war, purchasing oil, selling weapons. 

• Russian oil purchases and sales of dual-use goods and weapons.

While many issues were discussed and niceties exchanged, the summit seemed short on major breakthroughs. Here are some of our key observations about the visit and its implications for the U.S.:

• U.S. Trade Representative Jamieson Greer reiterated that the administration will keep Section 301 tariffs in place keeping trade relations status quo. 

• There was no breakthrough on Iran, meaning that energy prices will remain elevated and the conflict will continue.

• President Trump did not reaffirm his commitment to selling arms to Taiwan or make any public changes to the current policy. 

• China announced the Russian President Vladimir Putin is visiting next, demonstrating the continued strength of the relationship between the two designated U.S. adversaries. 

• It is difficult to sell China’s commitment to buy Boeing planes as a big economic win.

• Ultimately, there were few substantive policy changes coming out of the summit.

• There were also no major setbacks or increased tariffs/tensions. 

Reconciliation Legislation for ICE and CBP Funding Next Week 

Last week, the Senate released legislation that will give the Department of Homeland Security (DHS) $72 billion over the next three years. The spending includes $38.1 billion for Immigration and Customs Enforcement (ICE), $26 billion for Customs and Border Protection (CBP), $5 billion for DHS for immigration enforcement, $2.5 billion for the Department of Justice, and $1 billion for the Secret Service to support security enhancements to the White House East Wing.

The bill is expected to be on the floor next week and move to the House for passage before next Friday. Democrats have seized on the $1 billion in security upgrades for the East Wing as a political talking point suggesting it is related to President Trump’s ballroom construction. News Thursday about the resignation of the U.S. Border Patrol Chief Mike Banks could give Democrats additional political fodder during the debate next week. 

Late Thursday night, the Senate Parliamentarian ruled against a few provisions relating to border screening. The “Byrd bath” is a necessary step before the reconciliation bill can hit the Senate floor, and determines whether or not all provisions meet the so-called “Byrd rule.” If the Senate Parliamentarian determines a provision does not meet the requirements of the rule, the provision must either be redrafted to come into compliance or removed from the bill. In general, to pass the “Byrd bath,” a provision must directly impact federal spending or revenues.

Senate Republicans are already working on redrafting the provisions that have been thrown out, and will continue to do so as the Parliamentarian continues their review today. This is an expected part of the process, and the bill should still pass on a party-line vote using expedited reconciliation procedures. President Trump says he wants to sign the funding by June 1, 2026. 

Housing Legislation on the Docket for Next Week in the House

On Thursday, the House Financial Services Committee released its own bipartisan federal housing program reform bill that amends the Senate-passed version. The bill would notably not require “large institutional investors” - once again defined as those owning 350 or more homes - to divest or otherwise sell any properties bought before or after passage, but retains the ban on purchases (with many exceptions). The bill also narrows the definition of single-family home, and provides exemptions to address build-to-rent concerns. Additionally, the bill adds back in community banking provisions that were left out of the Senate bill.

The House will reportedly vote on the bill next week. Groups like the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC) offered quick support for the new House version. Senators on both sides of the aisle expressed frustration over the House bill, with Senator Elizabeth Warren (D-MA) going as far as to say it is an attempt to kill the bill entirely. The White House also expressed concern, saying that the bill might contain “policy concerns or implementation challenges.”

In our estimation, the most plausible path to passage would be the creation of an official conference committee between the House and Senate to reconcile the difference between the two distinct bills. This will also placate House Members frustrated from being jammed by the Senate. More work to be done but we predict this bill is signed before August recess. 

Senate Banking Committee Approves CLARITY Act (H.R. 3633)

The Senate Banking Committee approved an updated version of legislation to create rules and regulations for the sale and transfer of certain digital assets this week. The CLARITY Act was approved by a bipartisan vote of 15-9. The biggest objections to the bill were not about the technical aspects of market structure but about ethics concerns regarding Members profiting from digital assets.

The White House is very supportive of the bill and has focused legislative affairs staff on CLARITY as its top priority. The thought is that the bill will unleash investment in U.S. digital assets pegged to the dollar. We think ethics objections can be overcome and currently project that the bill will become law before the July 4th recess. 

One of the most contentious substantive provisions throughout negotiations has been incentivizing investments in stablecoins over traditional bank accounts. The new text would prohibit rewards on idle balances of stablecoins, while allowing them on transactions. Banking groups have already reacted with swift opposition, including the American Bankers Association, Independent Community Bankers of America, and the Bank Policy Institute mobilizing their members to send 8,000 letters to Senate offices last Friday. However, the Senate Banking Committee still passed the bill through the Committee on Thursday.

Legislative Efforts to Lower Gas Prices

Earlier this week, President Trump called for a suspension of the federal gas tax amidst rising fuel prices. In the House, there was a bipartisan vote to allow higher amounts of ethanol in gasoline. Both of these efforts are underway in order to help offset temporary higher gas prices. Below is a closer look at where these efforts stand. 

Gas Tax Suspension Faces Mixed Reaction on the Hill

The federal gas tax is set by Congress. The current federal gas tax of 18.4 cents per gallon has been in place since 1993. Congress has increased it three times since 1956. The federal gas tax provides revenue to Highway Trust Fund (HTF) which provides funding for federal surface transportation programs. 

According to the Congressional Budget Office (CBO), 83% of revenue to the Highway Trust Fund comes from federal gas, diesel, and other fuel taxes. Many states also implement their own state gas taxes, although some are considering state tax suspensions as well.

Although the President has indicated he would suspend the federal gas tax unilaterally, it is unlikely the President has any authority to take this action. Any gas tax suspension would need to be passed through Congress. Legislation has been introduced in the House and the Senate that would temporarily suspend the federal gas tax for various lengths of time. 

• House GOP Bill: Would suspend the federal gas tax for 18 months, along with the federal tax on diesel and aviation gasoline. Once the 18 months has concluded, the taxes would be phased back in rather than taking effect immediately.

• Senate GOP Bill: The bill would suspend the federal gas tax, diesel tax, and aviation gasoline tax for 90 days. It would give the President the option to extend the suspension for an additional 90 days if he “determines that economic conditions merit an extension.”

• Democrat Version: In March, Democrats introduced their own bicameral legislation to suspend the federal gas tax through October 1, 2026. 

Suspending the gas tax has predictably raised concerns among some lawmakers on Transportation Committees concerned with HTF solvency. In 2025, the CBO projected that the Trust Fund may not have sufficient funds to fund its obligations by as soon as FY 2028.Trucking and construction groups have been among the most vocal opponents to the proposed suspension due to concerns about the impact on federal transportation funding. 

The Committee for a Responsible Federal Budget has estimated that a three-month federal gas tax suspension would reduce taxes by $10.5 billion. It is also projected to hasten the Highway Trust Fund insolvency by seven weeks (June 2028). Given Congressional support for Highway Trust Fund funding, the tax suspension will be a heavy lift. At this point, its approval is unlikely. 

House Passes Year-Round E15 Gasoline Blend

In another policy effort to alleviate higher gas prices, the House passed legislation (H.R. 1346) to allow the year-round sale of refined oil blended with up to 15% ethanol. Under current law, ethanol blends above 10% are capped in warmer summer months because they do not meet Environmental Protection Agency (EPA) standards. The bill now goes to the Senate. 

Kevin Warsh Confirmed As Federal Reserve Chair

This week the Senate voted 54-45 to confirm Kevin Warsh as the next chair of the Federal Reserve. All Republicans voted in favor of the nomination and were joined by Senator John Fetterman (D-PA). The final confirmation comes just two days before current Chair Jerome Powell’s term expires on Friday. Powell intends to stay on the Fed after stepping down as chair, and could remain through January 31, 2028. 

Warsh’s first meeting as Chair will take place next month, on June 16. The President has expressed hope that Warsh will follow his directive to help lower interest rates, although during his confirmation hearing, Warsh pledged independence from the White House. There was little appetite for a further reduction of rates at the Fed’s last meeting at the end of April.

President Trump Rejects Iran’s Response to Peace Proposal

Safety in and around the Strait of Hormuz remains a key issue as one ship was seized while anchored off the coast of the United Arab Emirates and taken towards Iran. Another cargo ship was sunk near Oman on Thursday. 

The attacks occurred days after President Trump rejected Iran’s response to the U.S. peace proposal, citing Iran’s unacceptable demands. The President on Monday described the current ceasefire with Iran as on “massive life support” following his rejection of Iran’s conditions, which include war reparations, control over the Strait of Hormuz, and an end to U.S. sanctions on Iran. 

The United States’ primary focus in this conflict is to end Iran’s nuclear capabilities, which U.S. Energy Secretary Chris Wright on Wednesday described as being “a small number of weeks away” from being able to enrich uranium to weapons-grade levels. Secretary Wright’s testimony to the Senate Armed Services Committee came just one day after Iranian parliamentary spokesman Ebrahum Rezaei threatened to enrich uranium to weapons-grade levels if Iran were attacked again. 

Following his rejection of Iran’s demands in the latest round of negotiations, President Trump floated the idea of discussing a red line to end the ceasefire with Iran.

War Powers Vote

The Senate on Wednesday failed to advance a resolution that would have directed the President “to remove U.S. Armed Forces from hostilities within or against Iran unless a declaration of war or authorization to use military force for such purpose has been enacted.” The measure failed with a vote of 49-50, with Republican Senators Lisa Murkowski (AK), Susan Collins (ME), and Rand Paul (KY) voting in favor and Democratic Senator John Fetterman (PA) voting against. The vote marked the seventh attempt by Democrats to use war power resolutions to curtail the President’s use of military force. 

As a reminder, the President would veto an AUMF or War Powers Act (WPA) bill that restricts his ability to conduct war fighting operations. These measures can be vetoed just like any other bill or resolution. Even if it passes both chambers Trump would veto and the House would need 284 votes to override right now. The Senate would need 67 votes. There are not enough GOP Members willing to oppose Trump to make this happen right now.