1. Congress Will Pass “Phase 2” Bill This Week
Congress will send its second emergency bill to the White House this week, designed to support workers who are directly impacted by the COVID-19 outbreak — particularly those who lose their jobs or can’t work. (The first emergency bill, focused on funding vaccine research, was signed on March 6.) The Phase 2 bill was drafted by House Democrats and includes the following provisions, to be effective through the end of 2020:
- Establishes a mechanism for all Americans who need diagnostic testing for COVID-19 to be tested, without cost sharing (regardless of ability to pay).
- Requires employers with fewer than 500 workers to provide 2 weeks of paid sick leave to employees.
- Requires employers with fewer than 500 workers to provide 12 weeks of family leave to employees (to self-quarantine, or to care for others, including children out of school).
- Increases support for a number of social safety-net programs including Medicaid (health insurance for low-income Americans), and unemployment insurance.
The bill provides tax credits to help businesses pay for these new costs. The limitation to businesses with fewer than 500 employees is controversial (according to one estimate, 80 percent of American workers may be left out), and may have been necessary to secure support from the U.S. Chamber of Commerce. Importantly, the bill does not contain business-related rescues sought by impacted industries — most notably, the travel, hospitality, and airline industries. Senate Republicans have already begun work on a “Phase 3” bill that would provide relief to specific industries.
The Phase 2 bill represents a significant victory for Speaker Nancy Pelosi (D-Calif.), and for Democrats in general. The Democrats were able to attract Republican support (including the White House) for their bill, containing their worker-centric priorities. Several prominent conservatives supported the funding increase for Medicaid. While the vote in the House was bipartisan (363-40), the bill itself represents mostly Democratic priorities, and mostly excludes the elements most sought by the business community.
2. Congress Drafting Larger “Phase 3” Rescue Bill
Senate Republicans are now drafting a “Phase 3” rescue bill, which will dwarf the previous bills in terms of size. The White House is asking for a package worth $1.2 trillion, with the following elements:
- A massive direct stimulus to American workers. This will likely take the form of cash payments to all Americans (two payments of $1,000). President Trump’s idea of suspending the payroll tax through the end of 2020 will likely not be included.
- $250 billion in support for small businesses to stay afloat during the crisis.
- $50 billion in rescue funds for the U.S. airline industry (half in loans and half in grants). In addition, Boeing is asking for a rescue as well.
- $200 billion in unspecified stabilization funds (these could go to other sectors like the hotel and cruise ship industries).
- The package will probably not include tariff reductions, which Sen. Charles Grassley (R-Iowa) is pushing for.
Senate Majority Leader Mitch McConnell (R-Kentucky) said that the Senate will work at “warp speed” on the Phase 3 package and that the Senate would not adjourn until it passes its pacakge. Treasury Secretary Steven Mnuchin, who has emerged as the principal negotiator for the White House, said that he wants Americans to receive their $1,000 checks on April 6 and May 18.
The Phase 3 stimulus bill will be much harder to get through Congress, however, since it will need to meet Democrats’ demands for reform — which will be extensive. Many prominent Democrats like Sen. Elizabeth Warren (D-Massachusetts) are calling for major reforms in corporate governance in order to agree to this rescue package, as well as raising the national minimum wage to $15 per hour. Other Democrats are focusing on different areas of the economy to be rescued, including a “Marshall Plan” for public-health infrastructure. This bill will need the support of at least 7 Democrats in the Senate, and then support from the Democratic House, which means that the final package must be a compromise that includes elements that both parties can agree to. At the same time, given the emergency need for economic stimulus, the bill will invariably contain elements that would be impossible to enact under normal circumstances. There will certainly be surprises in this bill.
3. U.S.-China Tensions
- The COVID-19 outbreak has exacerbated tensions between the United States and China, with both countries suggesting that the other is to blame. President Trump and many of his allies continue to call COVID-19 “the Wuhan virus” or “a Chinese virus.” A Chinese spokesperson tweeted last week that “It might be the U.S. Army who brought the epidemic to Wuhan.” China has also announced that it will eject reporters of the three most prominent American print media outlets (New York Times, Wall Street Journal, and Washington Post). Michael Pillsbury, a China expert who advises the Trump Administration, said that the rhetoric “foreshadows an escalating clash,” and Chinese media sources say that “China needs to be prepared for the re-escalation of China-US trade conflict in the coming period.”
- The COVID-19 outbreak has also caused renewed focus on the interdependence of supply chains between the U.S. and China — particularly in the pharmaceutical industry. A suggestion in the Chinese state media about imposing export controls on pharmaceutical ingredients has received particular attention. The White House is now working on an executive order designed to relocate manufacturing in the United States. Senator Marco Rubio (R-Florida) held a Senate hearing last week on this topic, and stated: “I hope we can come up with proposals to bring supply chains back to the U.S., not as a matter of economic protectionism, but as a matter of national security and national economic stability.”
- Legislation on 5G continues to move forward, even amid the health crisis. Last Wednesday, the President signed into law the Secure and Trusted Telecommunications Act which provides $1 billion to “rip and replace” Huawei equipment in our existing networks. The FCC will administer the fund. Congress also sent to the White House a second 5G bill (the Secure 5G and Beyond Act) that requires the Administration within 180 days to develop and implement a whole-of-government national strategy to ensure the security of America’s 5G networks. The strategy must include “technical assistance to mutual defense treaty allies of the United States.” Both bills passed with overwhelming bipartisan support.
- CFIUS has cleared Infineon to purchase Cypress, a deal worth $8.7 billion.