What is the impact of the US government shutdown?

Author: Li Hanming

Today marks the third week of the US federal government shutdown. Since its inception on October 1st, this shutdown has surpassed the 21-day shutdown during Bill Clinton's presidency from 1995 to 1996, becoming the second-longest government shutdown in US history (the longest being the 35-day shutdown during Trump's first presidency from 2018 to 2019). Having single-handedly taken both positions, President Trump has truly earned a place in history, a place on Mount Rushmore.

However, during this period of the US federal government shutdown, many matters between China and the US governed by the federal government remained unaffected. For example, US visas continued to be issued normally, and international flights to and from the US were not suspended or canceled. In reality, the U.S. federal government shutdown follows a very complex logic. Different government departments require different sources of funding, and the mechanisms that determine whether they can continue to operate, such as employment conditions, also vary. Generally speaking, the funding sources of all government services can be divided into two types: "tax pooling" and "user pays." The so-called "tax pooling" is essentially "collecting money from all taxpayers and redistributing it to all taxpayers," while "user pays" means "those who need such services pay the government themselves." The issuance of entry-exit documents such as passports and visas is a typical "user-pays" government service—those applying for passports and visas must pay various fees, including processing fees (for example, applying for a US passport costs $165, and applying for a US tourist visa in China costs $185). Therefore, even without budgetary allocations, these departments can continue to operate normally. Also operating under the user-pays system are the Transportation Security Administration (responsible for civil aviation passenger and cargo security) and Customs and Border Protection (responsible for entry-exit and customs inspections). Every flight originating from the US requires a $5.60 TSA security fee; every flight entering the US requires a $14.39 CBP inspection fee (plus a $3.83 inspection fee to the USDA). Since these fees are user-paid, paid by international passengers, CBP and TSA maintain a certain level of revenue security. Of course, the US federal government doesn't require these agencies to charge fees only to cover their costs—so, in theory, these services could generate additional revenue for the federal government. For example, the TSA's security fee was originally $2.50, but the Obama administration increased it to $5.60 in 2018, generating a $3 billion increase in revenue. The recent US fee of $30 every two years for EVUS (a check-in procedure required for Chinese nationals holding 10-year US visas to enter the US) (and a $40 every two years for ESTA processing for visa-free countries) is a near-perfectly profitable business—the cost of maintaining the system far exceeds the fees. Based on the 17 million visa-free foreigners entering the country annually, this annual fee could reach approximately $600 million. While this amount is a drop in the bucket for the entire US federal government, it is a significant sum for the civil servants working at the US State Department. With approximately 20,000 civil servants and annual personnel expenses of approximately $8.8 billion, $600 million is a significant sum for the department—it could provide an additional $30,000 per employee. It's important to note that salaries account for only a small portion of US government spending. According to USASpending.gov, the U.S. Treasury Department's public spending website, grants and fixed charges (shown in purple in the image below) account for approximately 70% of U.S. fiscal spending, while salaries and wages account for only about 3%. It can be seen that of the over $9 trillion in U.S. government spending over the past 11 months, the vast majority was grants (with Chinese debt interest, Medicare, and Social Security spending accounting for half), while salaries and wages accounted for only 3%. Relying on salary cuts to reduce government spending is... well, unrealistic. Of course, the federal government can't afford to cut much—interest on the national debt, Medicare, and Social Security are the hardest hit. So, besides pressuring the Federal Reserve to cut interest rates, Trump has no choice but to turn the knife inward. However, doing so clearly means something is amiss. The impact of this federal government shutdown on civil servants can be categorized into three types: some civil servants will need to take unpaid leave during the shutdown (called furloughed), some will need to work temporarily without pay (excepted), and still others will be exempt—they will need to work but receive their normal pay (exempted). Of the CBP employees mentioned above, 97% are excepted—they are required to work but are temporarily unpaid. This has left many CBP employees in a financially difficult situation over the past three weeks: they're working without pay, and with salaries already low, they're struggling to make ends meet. But without pay, who will work hard? This has led to morale issues within the law enforcement workforce, creating an awkward situation for the Trump administration. A combination of carrots and sticks is essential, and addressing low morale among law enforcement officers is no exception. Trump first resorted to the stick: On October 11th, Russ Vought, director of the Office of Management and Budget, posted on X that "the RIFs (reduction in workforce) have begun." But using a big stick alone won't solve the problem: With such harsh words, civil servants know they'll be laid off and work for nothing if they work, and if they don't work, they'll be laid off too. So, wouldn't it be better to just not work? The result is even less work. And when cornered, even dogs will jump over the wall. Who knows what these civil servants might do when they're desperate? Therefore, on October 17th, Homeland Security Secretary Noem intervened, offering "superchecks" to guarantee the salaries of DHS law enforcement officers (including CBP, which handles border inspections and customs, ICE, which deports illegal immigrants, and the Secret Service, the royal guard responsible for protecting President Trump). CBP also told union members that it would reclassify its officers as exempt, ensuring they receive their salaries while they work. Where will this money come from? This likely stems from the recently passed "One Big Beautiful Act." Section 90002 of the act allocates $4.1 billion (plus $2.05 billion in bonuses) to CBP for the "recruitment and training" of law enforcement personnel over the next four years (until September 30, 2029). However, for CBP's 60,000 employees, $6 billion is only enough to cover one year's salaries—a figure that's clearly insufficient, especially considering the need for new recruits. Of course, CBP and other law enforcement agencies can also divert funds from other sources to pay their employees—a testament to the agency's ability to find the funds.

This round of turmoil has had a significant impact on the morale of American civil servants. Whether it's the harsh words of "layoffs" issued to civil servants during the government shutdown, or the embarrassing situation of finding money everywhere to promise civil servants big rewards, all of this is affecting the morale of the civil service. And whether the civil service, as the group that actually implements Trump's policies, supports Trump directly determines whether Trump's orders can be effectively implemented.

In fact, the trust and support of the civil service (or "bureaucracy") for the political system is a strong guarantee for the uploading of political information and the issuance of government orders. Civil servants in various countries are generally divided into the frequently rotated "political officials" or "officials" (such as ministers and secretaries of various ministries, known as Senior Executive Service in the U.S. federal government and Special Service in Japan) and the less frequently rotated "administrative officials" or "clerks" (such as permanent secretaries-general and vice-ministers of affairs in various ministries, known as Competitive Service in the federal government and General Service in Japan). Together with legislators of the legislature and judges of the judiciary, this forms a four-corner check and balance system.

In the traditional interaction between "officials" and "clerks," the responsibility of "clerks" is to help "officials" implement policies and realize their political ideals; while "officials" are responsible for formulating policies, gaining support from the legislative and judicial organs, and coordinating resources. If this mechanism is implemented well and interaction between officials and local staff is smooth, policies can be smoothly implemented under this positive interaction. However, if officials are unable to coordinate resources and instead blindly blame local staff, turning the knife inward, then under pressure from layoffs, the civil service will strictly adhere to regulations in order to protect itself, leading to a rapid decline in administrative efficiency. This is also Trump's most embarrassing aspect. Coming from a corporate background, he is accustomed to the "boss-subordinate" model, whereby the boss exercises absolute control over his subordinates, "ordering them around" and "screening without educating them" (as evidenced by his catchphrase, "You're fired"). However, the relationship between officials and local staff is by no means a superior-subordinate relationship, but more akin to a partnership, or the relationship between the brain and limbs. The brain can certainly control the limbs, but on the one hand, it has the responsibility to find food and keep the limbs strong; on the other hand, the limbs cannot be easily replaced. It is foreseeable that the relationship between the US civil service and Trump will remain at this tense level for some time to come. This will have some unexpected impacts on all work, including trade negotiations.