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United States Politics October 2018

United States: Democrats likely to capture the House in high-stakes midterm elections, could frustrate Trump’s legislative agenda and increase political instability

The upcoming midterm elections on 6 November will likely see the Democrats retake the House of Representatives, while the Republicans appear poised to retain their majority in the Senate, according to recent polling data.

Such an outcome would cause legislative gridlock and prevent the administration from enacting key policy priorities, such as repealing the Affordable Care Act (“Obamacare”), passing further tax cuts, comprehensive immigration reform, or slashing spending on programs like social security and Medicare—all long-time Republican priorities. It would also make it more difficult to progress on more bipartisan issues such as an infrastructure package that was part of Trump’s 2016 campaign platform. Indeed, capturing the House would allow Democrats to prevent Republicans from using the budget reconciliation process to pass laws with a simple majority in both the House and the Senate—instead of the 60 Senate votes usually required to overcome a filibuster. This tactic was recently used to pass tax reform as well as in trying to repeal Obamacare.

A Democrat-controlled House may also increase political instability, by renewing pressure on Trump in the Russia investigation—through the House Intelligence Committee—and raising the possibility of the impeachment of the President. It would also likely start congressional investigations of Trump’s potential conflicts of interest and tax dealings. However, the chances of Trump being forced out of office are still slim given that it would require a two-thirds majority in the Senate.

Lastly, the new Congress will vote on the ratification of the recent USMCA trade deal signed with Canada and Mexico, likely in H1 2019. The deal reinforces intellectual property rights, improves market access for U.S. dairy farmers, and notably introduces wage requirements for auto parts imports, in a bid to limit the use of cheaper Mexican labor across the tightly-integrated industry. Importantly, it also prevents either Canada or Mexico from independently making new trade deals with China, a move aimed at further isolating the U.S.A’s largest competitor. While a Republican Congress would probably rubber-stamp the deal, a Democrat-controlled House or Senate could request concessions and changes in certain areas, such as dispute settlement procedures. However, it is unlikely that Democrats would block the treaty entirely.

If, against current predictions, the Republicans retain control of both houses—possibly even boosting the Senate majority in the process—their main legislative priorities would likely be to make provisions from the 2017 tax cuts permanent, and to curb entitlement spending to attempt offsetting the resulting deficit. Meanwhile, the executive branch will likely continue to focus on trade issues, not only in its dispute against China, but also with other partners. Particularly, the administration’s recently renewed threats of tariffs on the European car industry could signal moves towards a trade deal in 2019.

According to researchers at Nomura:

“The successful conclusion of trilateral talks between the US, Mexico and Canada may provide a template for other trade deals between the US and major trading partners, most notably Japan and the EU. At the end of the day, the final deal largely upheld the current NAFTA framework despite almost constant uncertainty generated by President Trump’s comments during negotiations. However, we do not view the deal as likely to soften any tensions between the US and China, especially given more hawkish rhetoric emerging from the Trump administration.”

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