Shutdown Update - Key Takeaways

• Today, the White House was the most vocally dismissive of extending Affordable Care Act (ACA) tax credit subsidies since the shutdown began. 

• The Trump Administration has been focused on foreign policy (as we reported earlier this week) and bolstered to shut out Senate Democrats by polling which shows shutdown blame a dead heat.  

• White House Deputy Chief of Staff James Blair suggested the White House is not interested in extending the COVID-era enhanced tax credits. 

• The public repudiation of a key Democrat goal suggests the President is very comfortable with the GOP position in the shutdown and will not directly negotiate. 
• All eyes will be on Congress at the end of next week, as ACA open enrollment brings higher insurance premium rates. 

• States will also start SNAP benefit cut-offs, which will also ratchet up the pressure to reopen the government and negotiate. 

• Democrats may be near the verge of overplaying their hand. 

• We still predict a bipartisan extension of modified ACA tax credits before 2026. 

• It bears watching whether there is a public outcry from the 24 million Americans in ACA insurance plans that puts political pressure on Congressional Republicans.  

• If not, watch for a scramble by moderate Senate Democrats to end the shutdown.  

The Current State of Play & FY 2026 Appropriations

The shutdown drags on in D.C., with little indication of whether it will end before November. The prevailing wisdom on Capitol Hill is that eventually Republicans and Democrats will compromise on the enhanced tax credit extensions before the end of this year. Reports indicate that those conversations are happening behind the scenes. Today’s push-back on subsidies from the White House will certainly rattle Democrats and their allies, which is the intended purpose. They are waiting until next week to see if advanced notice of health insurance premium hikes will reinvigorate their messaging.  

It is likely that no deal will be politically feasible until the ACA insurance open enrollment period begins on November 1. One recent analysis of preliminary rate filings points to premiums increasing by 18 percent on average nationwide. In addition, Supplemental Nutrition Assistance Program (SNAP) funds will begin to dry up November 1, with half of states planning to cut off benefits. It appears both sides may be willing to wait and watch the political ramifications of those rate hikes before ending this stalemate. 

One overlooked factor in all of this is the actual FY 2026 spending bills that will fund the government after the continuing resolution. Whatever happens on health care tax credits will almost certainly be linked to a bipartisan spending deal that will require Democratic votes in both chambers of Congress. However, there is a significant spending discrepancy between some of the House and Senate discretionary spending levels. 

The table below includes an updated look at our FY 2026 appropriation bill tracker. It demonstrates the other major controversy that will have to be settled. The House has now passed all 12 appropriations bills out of Committee, while the Senate has moved eight. Spending contained in the eight Senate bills is $50.2 billion higher than the funding levels contained in the House bills. We predict that the final spending levels will likely reflect the high Senate levels for the most part. That could cost GOP votes in the House and explains why Democrats will be required to pass any spending bill that is not a CR.  

The Status of USMCA and Potential Renegotiation 

As we reported last week, Commerce Secretary Howard Lutnick said that the President will likely renegotiate the USMCA, saying he “wants to protect American jobs.” Other reports indicate the President might be interested in two separate trade agreements versus the larger USMCA. 

A month ago, the Office of the U.S. Trade Representative (USTR) kicked off the joint review of the USMCA on July 1, 2026. You can view our full timeline in our last weekly update. 

Reports indicate that trade agreement with Mexico could be forthcoming, especially as it butts up against a deadline put in place by President Trump for the end of this month. Successful separate agreements could remove tensions from the review process, which is currently expected to be anything but standard. 

But, late last night, the President said on Truth Social that he would be halting all trade talks with Canada over Canadian TV ads criticizing tariffs, throwing a potential trade deal with Canada into question.  

Current Issues for Renegotiation  

Mexico 

• Addressing illegal immigration 
• Trade deficit in automobiles and parts 

Canada 

• Addressing the protections of Canada’s dairy industry 
• Digital services tax 
• Softwood lumber exports and home products 

Both 

• Addressing the flow of fentanyl into the United States 
• Taking a stronger stance against China and ensuring China is not bypassing U.S. tariffs by first shipping products to Mexico and Canada 
• Access to critical minerals 

Potential Outcomes of Review 

The review is not meant to trigger a full renegotiation, but the President’s trade policy and rhetoric, particularly as it relates to Canada and Mexico, indicates to many that a renegotiation of some scale is likely. 

One or More Parties Choose Not to Extend: The agreement says that at the joint review, “each party shall confirm, in writing…if it wishes to extend the term of this Agreement for another 16-year period.” If one party chooses not to extend the term of the agreement, a joint review will occur annually for the remainder of the agreement. Notably, choosing not to extend does nothing to terminate the agreement, and the agreement continues through 2036. This could express U.S. concerns over the existing agreement while leaving time to negotiate separately or a new agreement, while leaving the USMCA in place for the time being.  

One or More Parties Withdraws: While not specifically tied to the review process, the agreement notes that a party may withdraw from the USMCA by providing written notice, and once written notice is received the withdrawal takes effect in six months. The USMCA remains in force for the remaining parties. This would likely cause large disruptions with our largest trading partners and cause significant market disruption as well. 

All Parties Choose to Extend: At this point, this appears to be the least likely outcome. Should all parties choose to extend, the agreement would automatically extend through 2042.  

Does Congress Need to be Involved? 

In the past, presidents have made nonbinding trade commitments with other countries without congressional authorization. We have seen this recently under both Presidents Joe Biden and Donald Trump after 2020. This is especially relevant given the expiration of Trade Promotion Authority (TPA) in 2021, which is enacted by Congress and “defines U.S. negotiating objectives and priorities for trade agreements and establishes consultation and notification requirements for the President to follow throughout the negotiation process.” The USMCA was passed by Congress under TPA. 

There is nothing in the USMCA or the implementation legislation passed by Congress that requires Congressional approval to withdraw from the USMCA. However, the Senate Finance Committee stated in its report on the implementation that the President “cannot withdraw from a congressional approved trade agreement without the consent of Congress.” But, the fact that the requirement was not included in the legislation as led some to argue that Congress may have ultimately ceded the decision to the President. 

U.S. Sanctions Russian Oil 

On Wednesday, the U.S. sanctioned Russia’s two largest oil companies, Open Joint Stock Company Rosneft Oil Company and Lukoil OAO, effective November 21, in addition to a long list of subsidiaries. The move comes as negotiations have stalled in the Russian-Ukraine conflict. We expect pressure on Russia to continue in the Administration and in Congress over the next few weeks as the President seeks another foreign policy win.  

As a part of that, we expect that Senate Majority Leader John Thune (R-SD) will continue to push for passage of the bipartisan Russian sanctions bill in the Senate within the next few weeks. As a reminder, the legislation has over 84 cosponsors across both parties and would impose a 500% tariff on Russian imports into the United States, in addition to sanctioning Russian leaders. 

China Trade Tensions Increase Ahead of Planned Meeting 

The Russian oil sanctions will also directly impact China as trade negotiations ramp up between the U.S. and China ahead of a planned meeting between President Trump and Chinese President Xi Jinping (next Thursday). Trump has predicted a deal will be reached when they meet. Reports on Thursday, however, indicated that the President could announce as early as today an investigation into China’s compliance with the 2020 trade deal made during Trump’s first term. The move could elevate tensions or put additional pressure on reaching an agreement before the current November 10 deadline.  

We believe these machinations are part of the pattern in these negotiations. Toward the end of dealmaking, issues that cannot be resolved at the staff level are elevated to principals. In this case, that means presidents. It also means that the tensions tend to rise before deals are finalized. There is no promise that these issues are going to be resolved by November 10 and another delay or even temporary implementation of the higher tariffs could occur. But we remain confident that a large-scale trade deal with China is a chief Trump priority and an eventuality before the midterms.  

What to Watch Next Week 



• The Federal Reserve is expected to cut interest rates by 25 basis points at its meeting next week. Stay tuned for a future update from Capitol Perspectives on the list to replace current Chair Jerome Powell as well. 

• Potential trade agreement with Mexico, ahead of the end of a 90-day extension granted in July. 

• Potential trade announcement between the U.S. and China.

 

• Open enrollment and new ACA premiums are made available on November 1. 

As always, if you have questions about these or any other policy topics and would like to schedule a meeting or call with Marc and Andy, please email us.