Our Opinion: 2018
US mid-term: Democrat House, Republican Senate
Last night, Democrats’ picked up enough seats to secure a majority in the House of Representatives, but Republicans have kept control of the Senate.
George Galloway, an ex-MP in the UK and high-profile left-wing commentator summarised the results well, describing them as a “blue-rinse rather than a blue-wave. Trump increases his hold in the Senate, losses by a moderate amount in the House. Anti-Trump Republicans were picked off. Pro-Trump candidates largely succeeded. The monster will claim victory. And he won’t be entirely wrong.”
After two years of complete control of the US government, Republicans will once again be obliged to share power in Congress.
The Democrats’ margin of control in the House will be modest, but sufficient to force bipartisan legislative compromises. Needing a net gain of 23 seats to control the flow of future legislation, they succeeded in picking up about 33. This is in line with historical averages, with the president’s party usually losing around 31 House seats in mid-term elections.
However, Democratic incumbents in a variety of closely watched Senate races lost their bid for re-election, allowing Republicans to increase their margin of control in the Senate. Based on preliminary voting results, Republicans are expected to increase their majority in the upper house by at least three seats. Their control of the Senate will allow President Trump complete discretion of federal judiciary appointments and cabinet appointees.
American voters also cast their ballots in 36 governorship elections, where Democrats secured a handful of new gains. These state elections will have a major impact on the US political landscape for another decade because the victors will have an important voice in the organisation of new Congressional districts after the 2020 census.
From a policy perspective, the election results suggest that the enactment of meaningful legislation must await the 2020 election. Entitlement reform remains highly unlikely. Tax policy will likely stay on hold for another two years. While it is possible that both parties may agree on the need for infrastructure investment, arguments over funding are likely to make a bipartisan solution difficult to reach.
With bi-partisanship a supremely rare commodity, Congress will need to find common ground or continue ceding authority to the executive branch until after the 2020 election. This suggests President Trump will continue to have the final say on many important policy decisions for the next two years, including trade, immigration, and internet regulation.
The result has seen littleimmediate market impact. On the trade front, the Trump administration will continue to use tariffs to pressure trading partners, especially China. There will likely be an increase in gridlock, making it difficult to pass legislation. Without common ground on areas to cut spending, the budget deficit is likely to remain higher than usual, keeping upward pressure on long-term government bond yields.
But President Trump will continue to use executive actions to loosen regulations, which could continue to support earnings growth, which will boost UK companies and markets.
7th November 2018