For the millions who cast their ballots in the US midterm elections, one issue ranked above all others: the economy. So what does the Democrats' stunning capture of both the US Senate and House of Representatives mean for the economy and economic policy, given that President Donald Trump still has two years of his term to go? Initial market reaction has been muted but trending negative.
Global stocks fell slightly, while the dollar followed suit. With Democrats now holding comfortable majorities in both houses of Congress and Trump still in the White House, it could lead to gridlock in Washington. Trump has already said he would become "Mr Veto," meaning he would block any legislation the Democrats advance.
"The magnitude of the gains for the Democrats in the midterms does not change too much for the near-term policy outlook, given the party still lacks a filibuster-proof majority in the Senate and President Trump has veto power to block legislation," Stephen Brown, chief North America economist with Capital Economics, said in a note. "I think we are looking at two years of complete 100% gridlock," Jacob Funk Kirkegaard, nonresident senior fellow with the Peterson Institute for International Economics, told DW after the results came in. "Nothing will get done of any kind." Some investors appear worried that the Democrats could force through AI regulation, especially if they also win the White House in 2028.
Rising opposition among large majorities of the US population to data centers — the key infrastructure behind AI — helped secure victories for many Democratic candidates. Kirkegaard, who is also a senior fellow at Bruegel, a European economics think tank, says the vote showed the extent of that opposition. Even if the Democrats can't force regulation, he thinks local opposition will make it harder for data centers to be built, which could hit the valuation of big tech firms that have benefitted from the AI boom.
"This election shows that the political underpinning of the rapid, aggressive AI growth story is shaky," he says. "It doesn't mean it's going to stop or be made illegal, but the dynamic of the growth story has shifted." Brown points out that if the Democrats were to win the presidency in 2028, they would be perfectly placed to make major policy changes. "That includes the potential for tax hikes on corporations and high-income individuals as well as regulation that could delay the AI rollout," he said.
According to polling conducted in early October by the Pew Research Center, 56% of Americans say Trump's tariff policies will have mostly negative impacts on the country, with only 20% saying mostly positive. That sentiment clearly drove many Democrats to victory in the midterms, particularly in states where tariffs have had a particularly negative impact. That includes those with sectors reliant on exports, such as Texas, Michigan, Iowa and Illinois, where counter-tariffs have hit and those that have high trade volumes with Canada.
Extract — continue reading at the source.
