A meatier Briefing than usual since we are swimming in big policy news…

The Chyna Deal

This morning the Trump Administration announced a significant agreement to drastically reduce reciprocal tariffs for an initial 90-day period.

The headline is that US tariffs on Chinese goods will decrease from 145% to 30% and Chinese tariffs on US goods will decrease from 125% to 10%.

Additionally, China has committed to "adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025." And, of course, the fact that (like so many "deals" in this Administration) the agreement extends for only a period of 90 days.

However, encouragingly, the agreement establishes a formal mechanism for continued discussions about economic and trade relations, led by Vice Premier He Lifeng on the Chinese side and Scott Bessent and Jamieson Greer on the US side.

The new US-China trade deal does not reinstate the "de minimis" exemption for low-value e-commerce shipments (goods valued at $800 or less), which previously allowed such items from China and Hong Kong to enter the US duty-free, and was an enormous boon to e-commerce giants like Shein and Amazon.

Existing tariffs imposed before April 2, 2025, including Section 301 tariffs, Section 232 tariffs, and special tariffs related to the fentanyl crisis, remain in effect. These are not rolled back by the new deal, so many Chinese goods (such as electric vehicles, steel, and aluminum) will continue to face separate, pre-existing tariffs.

For China, certain tariffs on US agricultural products and those imposed in retaliation for US fentanyl-related tariffs will also remain in place, meaning not all US goods will benefit from the new lower baseline tariff.

Some people are analyzing this as a massive climbdown. We hate to say "4D chess" but it does seem striking that we seem to be on the way to a new settlement where 10% tariffs on the world and 30% tariffs on China are seen as a new normal rather than an enormous rise in protectionist barriers as it would surely have been seen before November last year.

As ever, we will see how this shakes out…

The Drug Prices EO

Now let's talk about this. President Trump announced an EO adopting a "Most Favored Nation" policy whereby the government would pay prices similar to those paid by other high-income countries for drugs. Details are still hazy, and the EO is scheduled to be signed later today, but it looks like it will mainly affect Medicare.

According to a White House fact sheet, the policy could reduce costs for cancer patients and others by up to 60%, however a CBO analysis gave a much more modest figure of 5% price reduction across the economy. Among payers for the top 10 prescription drugs, private coverage is the largest, spending $42.8 billion, followed by Medicare at $28.0 billion.

It should also be noted that a similar initiative in the fist Trump term was blocked by the courts, however, the legal challenges centered on procedural grounds, with courts finding that the administration had failed to follow proper notice and comment procedures required by the APA. No doubt this EO will receive similar challenges.

We have to say this: this EO may or may not be a good idea, but it is simply inaccurate to call it "price controls" as many already are on X dot com and in Pharma-funded think tanks (yes, we know who you are). Drug makers will still be able to price whatever the market will bear in the open market.

Furthermore, the idea that the government should pay the market price for an item because "it's the market price" and that to do otherwise would be "price controls" is simply nonsensical. If the government buys a million pencils, or a million paperclips, it should negotiate a lower price for those pencils or those paperclips given the size of the order; for the government to simply look up the retail price and pay that times one million would be a gargantuan misuse of taxpayer funds. In every other context, this is something that advocates of small government and free markets would praise as prudent and efficient use of government funding, reducing costs. It's a policy DOGE might have put together. Incidentally, and we write here as a business owner, it's also how actual free markets operate in the real world, as opposed to the "free markets" of Econ 101 lectures and think tank white papers. Big purchasers get lower unit prices. Only in the topsy-turvy world of government is it seen as normal or even "pro-market" for a big purchaser of any product to pay full price.

The correct critique of the policy is that it's unlikely to reduce drug prices across the economy by much (which, incidentally, demonstrates that it is not in fact a price control) and will not work as well as advertised, which should not be shocking for a policy that originally hails from progressive think tanks. Also incidentally, since it won't reduce overall prices much, it won't have the dire effects on R&D claimed by opponents. What it might do is reduce Medicare spending (or at least the rate of Medicare spending growth), which would already be very good.

Other Policy News You Need To Know

#Immigration #Asylum — Could you imagine any US President, any other US President saying this? President Trump has defended his asylum policy for White South Africans in these terms: "It's a genocide. White Farmers are being brutally killed and their land is being confiscated. And the media doesn't even talk about it. If it were the other way around, that would be the only story they talk about." This is simply correct, and it should not be in any way controversial to say that.

SEE ALSO: Our podcast interview with Ernst Van Zyl of AfriForum, the biggest civil rights organization in South Africa, on this issue.

#Family — New NBER paper finds that, surprise, divorce is bad. "Following divorce, parents move apart, household income falls, parents work longer hours, families move more frequently, and households relocate to poorer neighborhoods with less economic opportunity. This bundle of changes in family circumstances suggests multiple channels through which divorce may affect children's development and outcomes. In the years following divorce, we observe sharp increases in teen births and child mortality. To examine long-run effects on children, we compare siblings with different lengths of exposure to the same divorce. We find that parental divorce reduces children's adult earnings and college residence while increasing incarceration, mortality, and teen births."

#Energy #Reg — New and useful report from R Street's Olivia Manzagol and Philip Rossetti on permitting reform, whose goal is essentially to demonstrate that you can get a lot of new (and emissions-clean) energy through that lever alone.

#Tax — Interesting from the Tax Foundation, taking aim at a little-known tax provision, but one with potentially big impacts: the tax exemptions received by credit unions. We think it's great that credit unions exist, but the argument is that this gives them an unfair advantage in the marketplace.

#Welfare — EPIC's Matthew Dickerson in the WSJ with some ideas on how Congress could reform food stamps.

#Immigration — Jessica Vaughan of the Center for Immigration Studies explains how chain migration works and why it is bringing too many people to the US, and outlines simple reforms.

#Euthanasia — Very worrying, given what we know about Canada and the new bill passed in the UK: The New York State Assembly voted 81–67 to approve a bill that would allow physician-assisted suicide. Timothy Cardinal Dolan writes in First Things to explain why it is a "disaster in waiting."

#AI — Here's Jim Mitre, Vice President and Director of RAND Global and Emerging Risks, on AI and national security, an area on which RAND has been producing a lot of work lately.

#Policing — Hey, maybe don't abolish the police? This may seem very passé, but still worth noting. Remember how in the Summer of 2020 a bunch of activists explained that you could just replace cops with social workers? Well, Eugene, Oregon (Oregon, of course) tried that. And then some NBER economists studied it. Turns out you still need cops.