U.S. Government Shutdown Deepens as Economic Risks Mount

Evan Wise/Unsplash
Image Credit: Evan Wise/Unsplash

The U.S. government remains closed for business after 15 days of congressional back-and-forth that failed to produce a bipartisan deal to keep federal agencies running into November (or beyond) while addressing Democrats’ demands to preserve funding for public health insurance programs. The Trump administration is using the shutdown to accelerate mass layoffs of federal workers and reduce the scope of government, drawing complaints from fellow Republicans and lawsuits from employee unions. Democratic leaders in Congress are trying to reframe the shutdown as a battle over health care – a traditional Democratic strength – evoking the 2018 midterms, when the party used threats to roll back Obama-era reforms to galvanize voters and reclaim the House majority during President Donald Trump’s first term in office. 

So far, Americans are more likely to blame Republicans rather than Democrats for the impasse, 47% to 36%, with the share of Republican voters holding their own party responsible up six points since before the shutdown, at 39%, polling by Morning Consult shows. Data by Reuters indicates that 63% of respondents blame Trump, who has largely remained on the sidelines, preoccupied with orchestrating the Gaza ceasefire and hostage release agreement. But time will tell whether Democrats’ strategy proves effective in a longer term, given that only 2% of voters view health care as the most important problem facing the country. Today, the issue ranks well below the economy (16%) and political polarization (13%) – and far below its salience in 2018, when 41% named health care as the top factor driving their vote.

As the shutdown enters its third week, 49% of Americans are concerned about possible delays in services they rely on, a share likely to rise as the full economic effects of the shutdown come into view. So far, layoffs and furloughs have affected hundreds of thousands of federal workers and contractors, although the administration has managed to keep paying active-duty troops – arguably removing one of the biggest pressure points that might otherwise have pushed both sides toward compromise. In the meantime, analysts expect GDP growth to decline by as much as 0.2 percentage points for every week the government remains closed, compounding economic challenges in states with large federal workforces. 

House Speaker Mike Johnson, a Republican, predicts the shutdown could be the longest ever – but the political calculus may shift once Trump, fresh off his Middle East victory tour and ready to turn his attention to Russia, refocuses on the high-stakes negotiations in his own backyard.

Trump’s Urban Troop Deployments Carry Political Risks

Last week, President Trump announced deployment of the U.S. National Guard to Chicago, ostensibly to bolster public safety while carrying out an increasingly aggressive immigration enforcement campaign. If not for a court order blocking it, Chicago would have been the fourth Democratic-run city since June, after Los Angeles, Washington, and Memphis, to receive federal troops for civil-order purposes. 

Trump’s approach marks the first domestic troop deployments for law-enforcement purposes since 1992, and the first in decades to occur over the objections of state and local officials. For that reason, it has sparked sharp political backlash and a series of legal challenges forcing the administration to scale back or suspend deployments to additional cities, such as Portland.

The administration frames these actions as a law-and-order initiative to protect federal property, assist immigration enforcement, and reassert control in cities where local authorities have “failed.” Politically, the deployments are intended to rally the Republican base with vivid displays of strength, position immigration and crime as the twin crises facing the nation, and force Democrats to defend local authority in the face of federal intervention. 

This strategy seems to be succeeding with Republican voters – but it is making independents, who broke Trump’s way in 2024 across several swing states, increasingly uneasy. Their disapproval of the troop deployments has climbed to 64%from 47% in June, when the National Guard was first sent to Los Angeles. Their net approval of Trump’s handling of immigration now stands at -28 percentage points, down 18 points since July, and their net approval of his overall job performance has eroded even further, to -38 points, down 12 points since July and compared to -8 points among all voters. Unless the administration scales down its show of force, these warning signs underscore real risks for the Republican Party in the midterms, where outcomes tend to correlate more closely with presidential approval, which remains consistently negative, than with any other metric.

States, Private Sector Take the Lead on Boosting Electric Vehicles 

Consumer tax credits on electric vehicle purchases, funded by the Biden-era Inflation Reduction Act, ended Sept. 30. Still, many states continue offering their own incentives to sustain EV sales momentum. Seventeen states provide purchase credits, ranging from a $1,500 tax credit in Rhode Island to $7,500 in Oregon and Maine. New York maintains a $2,000 Drive Clean Rebate, and California offers up to $7,000 in rebates. Starting next month, Colorado will raise its rebates on new and used EVs by roughly one-third (to $9,000 and $6,000 respectively) when high-emitting vehicles are traded in, even as its broader tax credits are set to shrink next year. At the same time, 40 states now impose higher annual registration fees on EV owners to offset lost gasoline tax revenue, while four (Oregon, Virginia, Utah, and Hawaii) charge per-mile road usage fees applied to all drivers.

Whether state-level incentives and an expected influx of used EVs can sustain sales remains to be seen. Meanwhile, the EV charging network is expanding rapidly, with the number of fast-charging ports nationwide up more than 80% over the past two years. California recently launched a $55 million program to subsidize public fast chargers, particularly in rural, low-income, and tribal areas, and introduced the country’s first reliability and data-sharing standards for publicly funded stations. Other states are taking similar steps: Oregon requires “EV-ready” wiring in new buildings, Maryland offers rebates for home and commercial charger installations, and Colorado and Florida are exploring uptime and performance rules for public chargers. 

These moves complement major private-sector investments: Tesla and automaker-backed networks like Electrify America and EVGo are expanding fast-charger access, while retailers such as Walmart, large gas stations, and travel centers are adding stations of their own. Together with the federal NEVI program, which is building out a nationwide highway network following a six-month funding freeze, these efforts mark brighter spots in an EV landscape that otherwise faces near-term headwinds.


China

  • Trump administration officials are working to deescalate U.S.-China tensions sparked by a new round of Chinese restrictions on exports of rare earth magnets, as well as any devices that incorporate them, like smartphones. The administration initially responded with tariffs on imported wood products and fees on Chinese-owned ships docking in U.S. ports, and promised a 100% levy on all Chinese imports starting Nov. 1. But now Treasury Secretary Scott Bessent says the 100% tariff “does not have to happen” and a tariff pause that is currently in place as the trade talks continue could be extended further if China halts its plan for rare-earth export controls. President Trump’s meeting with Chinese President Xi Jinping in South Korea is still on track, although much can change in the next two weeks.
  • U.S. automakers rely heavily on Chinese rare earth magnets — except for GM, which benefits from a direct supply of domestic magnets from multiple U.S. factories as a result of pandemic-era investments.
  • The Trump administration expanded trade restrictions for Chinese and other foreign companies on its entity list to include their majority-owned subsidiaries. The new rule aims to close a loophole that allowed firms to circumvent sanctions by shifting business to subsidiaries. Critics claim the rule will require a prohibitive amount of partner due diligence, especially for smaller firms, and can be circumvented by changing subsidiary ownership structures. 

Autos

  • President Trump is considering significant tariff relief for automakers that operate assembly plants in the U.S. This relief could include extended import adjustment offsets to address duties on imported auto parts, potentially expanded to cover domestic engine production. The final decision is expected soon.
  • The forthcoming round of cuts to federal grants funding clean energy transition is poised to impact several major programs in the auto sector. Those include $500 million awarded to GM to convert a plant in Michigan to EV production, $335 million for Stellantis to convert an Illinois facility to build midsize electric trucks, and $250 million for Stellantis to convert a plant in Indiana to produce EV components. 
  • California Gov. Gavin Newsom signed a bill allowing over 800,000 Uber and Lyft drivers to unionize — the largest expansion of private sector collective bargaining rights in the state’s history. This legislation, a compromise between unions and tech companies, also reduces insurance requirements for accidents caused by underinsured drivers, potentially lowering fares. Ride-share drivers can already unionize in Massachusetts, with Illinois and Minnesota considering similar measures.

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