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8 Nov 2018 – Insights

Business as usual for Trump – despite Democrat victory in US mid-terms

The results of the US mid-term elections held on 6 November turned out as expected: the Democrats won the House of Representatives whereas the Republicans held on to their majority in the Senate.

Even though on paper the election bolstered the Democrats’ standing, the expectation remains that the foreign policy line pursued by Republican president Donald Trump will be able to continue without change.
“A divided congress makes the job of doing politics harder because the two parties have for many years been unable to cooperate on domestic policy. Instead, Trump can continue his focus on trade policy and foreign policy – areas where he is able to manoeuvre more easily without the intrusion of Congress,” assesses Mikael Milhøj, senior economist specialising in the US economy.

The trade war with China, in particular, has attracted headlines and has been the most visible stamp on trade policy left by Trump so far. Mikael Milhøj sees a risk that Trump will continue the trade war up until the next presidential election.

 

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There is a risk that the trade war – particularly if it escalates further – will also lead to a decline in growth in the US. When fiscal policy no longer stimulates the economy and when the US central bank tightens monetary policy even further, there is a danger of an economic downturn.

“The US has a problem with the long-term sustainability of its public finances. And this problem has not been diminished by the fact that Trump has increased the public deficit by lowering taxes and increasing public spending at the same time. This could prove a dangerous cocktail for the US economy around 2020-21,” says Mikael Milhøj.

He stresses that even though the financial markets have started to show some signs of weakness this is not necessarily a signal that the current economic upturn in the US is coming to an end. It is possible for the markets to fluctuate whilst the real economy remains robust.

“We expect the US economy to continue growing at a respectable rate. Optimism among both consumers and companies remains extremely high, which typically means decent levels of consumer and investment activity. In addition, there is a likelihood that the current economic recovery will be the longest in US history.”

About the US mid-term elections

Every two years, the US holds congressional elections, which this year were held on 6 November. In years when the congressional elections do not coincide with the presidential elections, the congressional elections are called mid-term elections because they come in the middle of the President’s term.

The elections are for the US parliament, which consists of two chambers: the Senate and the House of Representatives. Together, these two chambers constitute the legislature of the Federal government of the United States.