Crunch deal to raise US debt ceiling passes through House of Representatives

Published

2 years ago

June 1, 2023

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A crunch deal to raise the US debt ceiling has been voted through by the House of Representatives.

The agreement – which aims to avert a potentially catastrophic scenario where the US defaults on its national debts – passed through the Republican-majority House by 314 to 117 votes.

The proposal will now move to the Senate. The Senate’s majority leader, Chuck Schumer, has vowed to move quickly to pass the bill.

It needs to be on President Joe Biden’s desk by Monday’s deadline – the point at which the US federal government is expected to run out of money to pay its bills.

“This agreement is good news for the American people and the American economy,” Mr Biden said after the vote.

“I urge the Senate to pass it as quickly as possible so that I can sign it into law.”

What is the debt limit – and why does it matter?

The main aim of the deal is to increase the US debt limit from $31.4trn (£25.3trn) – which it achieves by suspending the borrowing limit until January 2025 rather than setting a new level.

It also averts a situation where the US defaults on its national debts – a scenario that would have huge impacts both for the US and the wider world economy.

US Treasury secretary Janet Yellen previously warned that without a deal to suspend the debt ceiling, the US would not have enough money to meet all of its financial obligations by 5 June.

That would mean civil servant wages, social welfare payments, and health insurance would go unpaid.

Crisis gets kicked down the road – but is a ‘moment of reckoning’ to come?

American politics has a strange ability to create a sort of manufactured jeopardy, which then has the prospect of becoming a self-fulfilling prophecy.

Few really believe that the country’s politicians will actually allow the nation to default for the first time in its history.

But this game of chicken is going to the wire – both sides unwilling to move, even to negotiate, until the last minute to eke out concessions.

And to be clear, it is a game which can go wrong – and if a default did happen, it would be a global crisis.

The vote overnight, for the deal – to raise the debt ceiling – means the crisis is a little closer to being avoided.

Congressmen and women found consensus in a deeply divided house to vote for the deal which had been hammered out by President Biden and his political foe, House speaker Kevin McCarthy, over the past few days. It passed 314 to 117.

But in their pre-vote speeches, it was clear that many, many politicians have deep reservations about the level of unsustainable debt.

Yes, they were relieved that the deal allows bills to be paid, it protects the country’s credit rating, medical care is protected as is social security.

But, “a moment of reckoning is coming”, one Republican warned. Another said the level of debt is “totally unsustainable and irresponsible”.

Some Republicans celebrated concessions they got, which will impose spending caps and place checks and balances on the executive branch of government.

But the consensus was that it wasn’t perfect or even good for anyone. But that’s the price of such divided politics.

The bill now heads to senators. They may want amendments, but are likely to pass it. Crisis is then averted. This game of chicken over. Debt ceiling raised. Can kicked down the road.

If the US no longer pays interest on its bonds – IOUs it issued to raise funds – it would default on debt payments and its credit rating would fall.

A vital way the country raises money – selling bonds – would also be at risk due to the insecurity will markets would charge more to lend to the US.

Economists warn that a prolonged period where the US cannot pay its bills would lead to a nearly 20% drop in stock prices – and an economic contraction of up to 4%.

Bipartisan deal

Wednesday’s vote comes after Mr Biden and leader of the House of Representatives, speaker Kevin McCarthy, reached an agreement over the country’s debt ceiling.

In order to secure the agreement, the Democrats were forced to make concessions to the typically pro-small-state Republicans, including spending cuts and policy concessions.

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In a speech before the vote, Mr McCarthy praised the bill’s budget cuts, which he said were needed to curb Washington’s “runaway spending”.

Despite his praise of the deal, it drew opposition from 71 hardline Republicans. That would normally be enough to block partisan legislation, but 165 Democrats backed the measure and pushed it through.

US

Trump pauses tariffs on most goods from Mexico and some from Canada

Published

3 hours ago

March 7, 2025

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Trump pauses tariffs on most goods from Mexico and some from Canada

Donald Trump has announced that most goods imported from Mexico and some from Canada are to be exempt from his trade tariff regime for at least four weeks, just days after the charges were imposed.

“We are working hard, together, on the border, both in terms of stopping illegal aliens from entering the United States and, likewise, stopping fentanyl,” the president posted on his Truth Social platform after first relaxing his sanctions against Mexico.

He often gives both issues as reasons for the tariffs.

The latest climbdown came after he surprised financial markets 24 hours earlier by waiving tariffs against carmakers following pleas from motor industry bosses.

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The White House said that 62% of Canadian imports would still be subject to 25% tariffs because they were not compliant with a trade deal – USMCA (US Mexico and Canada) – struck in 2020.

News that Canadian goods which met the USMCA criteria were being spared tariffs until 2 April followed hours after the same concession was agreed between Mr Trump and his Mexican counterpart.

A tariff of 10% was to remain on potash – a fertiliser used by farmers – and Mr Trump added that the auto tariffs would definitely return next month.

The White House revealed some details. Parts due to flow into the US from Mexico and Canada as part of the manufacturing supply chain would not qualify for tariffs so long as they complied with the USMCA deal.

‘Rules of origin’ guidelines under the agreement allow goods to move between the three countries tariff-free if they qualify with a designation that they were made in North America.

US commerce secretary Howard Lutnick told Sky’s US partner network CNBC that, taken together, more than half of usual cross border trade volumes would be exempt under the expanded concessions.

He too signalled there were signs of progress in the dispute with America’s closest trading partners, saying each had worked hard to make progress in tackling imports of Fentanyl – blamed for high crime and deaths in US communities.

But Mr Lutnick explained that, as things stand, the reprieve would only last until 2 April when the Trump administration plans to impose reciprocal tariffs – on top of the 25% charges that came into force on Tuesday.

At the same time, Mr Trump is under intense pressure to relax his tariff regime permanently amid a backlash from US firms and financial market investors who fear it is self defeating.

A closely-watched forecast has even suggested that the threats of a trade war were enough to push the US economy into recession before Mr Trump took office.

The dollar has sunk in value and US government borrowing costs have risen on the back of the turmoil.

US stock markets were also feeling the pressure again with the tech-heavy Nasdaq on course to fall by more than 3% on the day.

It is widely expected that the European Union will be next to face tariffs – possibly from 2 April – after Mr Trump threatened action “very soon” just last week.

Commenting on the threat to the eurozone from such a move, the president of the European Central Bank Christine Lagarde said on Thursday: “Just the threat of those tariff increases and potential retaliations are putting a brake on – on investment, on consumption decisions, on employment, hiring, all the rest of it.”

While Mr Trump has not issued a specific threat against the UK, her counterpart at the Bank of England Andrew Bailey told a committee of MPs on Wednesday that the US should work “multi-laterally” rather than bilaterally to resolve its disputes.

US

US ‘destroying’ international rules-based order by trying to meet Russia ‘halfway’, Ukraine’s UK ambassador warns

Published

3 hours ago

March 7, 2025

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US 'destroying' international rules-based order by trying to meet Russia 'halfway', Ukraine's UK ambassador warns

The United States is “finally destroying” the international rules-based order by trying to meet Russia “halfway”, Ukraine’s ambassador to the UK has warned.

Valerii Zaluzhnyi said Washington’s recent actions in relation to Moscow could lead to the collapse of NATO – with Europe becoming Russian President Vladimir Putin‘s next target.

“The failure to qualify actions of Russia as an aggression is a huge challenge for the entire world and Europe, in particular,” he told a conference at the Chatham House think tank.

Ukraine latest: ‘Watershed moment’ as Kremlin blasts Macron

“We see that it is not just the axis of evil and Russia trying to revise the world order, but the US is finally destroying this order.”

Mr Zaluzhnyi, who took over as Kyiv’s ambassador to London in 2024 following three years as commander-in-chief of the Ukrainian armed forces, also warned that the White House had “questioned the unity of the whole Western world” – suggesting NATO could cease to exist as a result.

It comes as Ukrainian President Volodymyr Zelenskyy scrambles to repair relations with US President Donald Trump following a dramatic row between the two men in the Oval Office last week.

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Mr Trump signalled on Tuesday that tensions could be easing, telling Congress he had received a letter from Mr Zelenskyy saying he was ready to sign a peace deal “at any time”.

But on the same day, the US president ordered a sudden freeze on shipments of US military aid to Ukraine, and Washington has since paused intelligence sharing with Kyiv and halted cyber operations against Russia.

Mr Zaluzhnyi said the pause in cyber operations and an earlier decision by the US to oppose a UN resolution condemning Russian aggression in Ukraine were “a huge challenge for the entire world”.

He added that talks between the US and Russia – “headed by a war criminal” – showed the White House “makes steps towards the Kremlin, trying to meet them halfway”, warning Moscow’s next target “could be Europe”.

US

Lesotho minister calls Trump ‘insulting’ for saying nobody has heard of country

Published

3 hours ago

March 7, 2025

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Lesotho minister calls Trump 'insulting' for saying nobody has heard of country

Lesotho’s foreign minister has said it is “insulting” for Donald Trump to say nobody has heard of the country.

In his address to the US Congress on Tuesday, the US president mentioned Lesotho while listing some of the foreign spending he had cut as “appalling waste”.

“Eight million dollars to promote LGBTQI+ in the African nation of Lesotho, which nobody has ever heard of,” Mr Trump said, drawing laughs in the Congress.

The president also appeared to struggle to pronounce the country’s name.

Lesotho’s foreign minister, Lejone Mpotjoane, said: “I’m really shocked that my country can be referred to like that by the head of state.

“Lesotho is such a significant and unique country in the whole world. I would be happy to invite the president, as well as the rest of the world, to come to Lesotho,” Mr Mpotjoane told the Reuters news agency.

He later told The Associated Press: “It is surprising and disappointing that he claimed no one knows Lesotho, especially given that the US has an embassy here.

“He should speak for himself and not generalise.”

The Trump administration has cut billions of dollars in foreign aid worldwide as part of the president’s America First policy.

Lesotho, which has a population of around 2.3 million people, has received American assistance for nearly 20 years through USAID, which gave it more than $44m (£34.1m) last year.

Mr Mpotjoane said while civil society organisations funded by the US embassy in Lesotho did work to support the LGBT+ community, the US also provided important funding to the country’s health and agriculture sectors.

The cuts have forced Lesotho’s HIV programme to lay off at least 1,500 health workers – about 7% of the country’s health staff – in what the government has described as a severe blow.

US aid has been credited with helping Lesotho provide life-saving treatment to more than 200,000 people living with HIV.

Mr Mpotjoane said the government was looking at how to become more self-sufficient.

“The decision by the president to cut the aid… it is [his] prerogative to do that. We have to accept that. But to refer to my country like that, it is quite unfortunate.”

This wasn’t the first time Mr Trump has reportedly been disparaging about Africa. During his first term, it was reported that he referred to African nations, as well as Haiti and El Salvador, as “shithole countries” – though Mr Trump denied this.

Elon Musk, a key adviser to Mr Trump and proponent of the foreign aid cuts in his role as head of the new department of government efficiency, has been trying to do business in Lesotho in recent months.

Mr Musk’s Starlink internet satellite service, a subsidiary of SpaceX, has applied for a license to operate in Lesotho. It is one of several African countries where the company is bidding to win contracts.

The Lesotho Communications Authority said last month it recently received Starlink’s bid for a 10-year license.

Prince Harry also co-founded the charity Sentebale to support children who live in extreme poverty or suffer from HIV/AIDS in Lesotho.