CRU: U.S. Midterm Election Results—What's the Impact?

Our view is that there is some scope for additional fiscal policy easing, which would be marginally positive news for growth in 2019. We don’t think any fiscal easing will be large enough to alter the path of monetary policy and, on trade, we think the trade war will continue.

Upside for U.S. Growth from Fiscal Policy 

Prior to the midterms, President Trump discussed the possibility of another round of tax cuts that would benefit the middle-class earners. The midterms make tax cuts less likely, because all revenue bills must originate in the House, which is now under the control of Democrats, traditional supporters of taxation for social spending.

Additional infrastructure spending is now more likely given that both Democrats and Republicans agree that rails and roads, and broader public infrastructure, need urgent attention. Such a scenario would be upside news for the construction sector and economic growth.

No Change to Trade Wars 

We expect the trade war will continue.

U.S. foreign policy is largely under the control of the president.

With the power in the House and Senate now split across parties, the domestic policy stance is likely to remain pretty much unchanged.

While the mood music between Trump and China’s President Xi Jinping looks to have eased, this is unrelated to the midterms.

CRU remains of the view that trade tensions will ebb and flow as they have done because the root cause of the trade war is the belief from Trump and others that China’s trade practices have not been entirely fair.