US Midterm Elections: The Base Case Scenario and the Implications
The national midterm elections are today. As of yesterday morning, Nate Silver’s FiveThirtyEight website[i] is giving the Democrats an 85.6% chance of taking the House of Representatives and the Republicans an 85.6% chance of keeping the Senate. This forecast should be no surprise; the president’s party almost always loses House seats in the first midterm election, and the Republican margin of control there is narrow. Below, I outline some key issues and the potential implications if this forecast becomes a reality.
Potential Market Impacts
- Wall Street analysts seem to agree with FiveThirtyEight’s odds, and the outcome of a Democratic House and Republican Senate is likely priced into the markets. I don’t expect markets to move in this scenario.
- Many believe that a divided Congress would result in gridlock.
- House Democrats would likely propose raising the corporate tax rate from 21% to 25%, but I don’t think they’d succeed.
- I see possibilities for a Democratic House to work with Trump in areas where their priorities align, including infrastructure, drug price controls and a hike in the minimum wage.
- I think the US-Mexico-Canada Agreement (USMCA) will be ratified, though it may have a harder time getting votes from a Democrat-controlled House.
- Democrats generally support Trump’s protectionism, so I don’t expect them to stop the emerging trade war with China.
- Trump will likely take regulatory actions and issue executive orders to bypass Congress. Trump could also reverse or nullify any executive orders and regulations that Obama had imposed without Congress. I have environmental and education regulations in mind.